Northrop Grumman Corp. (NYSE:NOC)

The analysis of the liquidity ratios over the observed quarterly periods reveals distinct trends and fluctuations.

Current ratio

The current ratio demonstrates a significant decline from 2.52 at the beginning of the period (March 31, 2018) to a range fluctuating around 1.1 to 1.5 in subsequent years. Notably, it decreases sharply in mid-2018 and maintains a generally lower yet somewhat stable level around 1.1 to 1.6 through 2019 to 2023. This indicates a reduction in the company's short-term liquidity buffer relative to current liabilities compared to 2018, but it remains above 1, signifying adequate coverage of current liabilities by current assets.

Quick ratio

The quick ratio follows a pattern similar to the current ratio, starting at 2.41 in March 2018 and dropping to just below 1.0 by the end of 2018. Throughout 2019 to early 2020, it increases slightly above 1.0, then fluctuates around 1.0 to 1.3 until the end of 2021. From 2022 onward, the quick ratio experiences a downward trend, falling below 1.0 in several quarters and reaching a low of 0.87 in March 2023 before a slight recovery to 1.03. This suggests a reduced capacity to meet short-term liabilities using the most liquid assets (excluding inventory), especially notable in the latest quarters.

Cash ratio

The cash ratio shows the most volatility and lowest absolute values among the three liquidity measures. Initially, there is a steep drop from 1.62 in March 2018 to lows below 0.2 throughout 2018 and early 2019. After this, there is a gradual recovery through 2020 where it peaks near 0.51 by December 2020. However, from 2021 onwards, it trends downward again, falling to levels near or below 0.25 in 2022 and only modestly improving to 0.24 by March 2023. This ratio indicates that cash and cash equivalents alone cover a decreasing proportion of current liabilities over time, pointing to more reliance on other current assets for liquidity.

Overall, the liquidity position as measured by these ratios reveals a notable contraction from early 2018 levels, followed by periods of modest recovery and subsequent decline, particularly in the cash ratio. While the current ratio consistently stays above 1, the quick and cash ratios indicate increasing pressure on immediate liquidity and potential tightening of liquid asset availability in recent quarters. This pattern implies a shifting composition of current assets and perhaps changing working capital management strategies over the analyzed period.

The analysis of the quarterly financial data reveals notable trends in liquidity over the observed periods. The current assets exhibit fluctuations, with an initial decline from 16,157 million US dollars at the end of March 2018 to a low of 9,680 million by December 2018. Subsequently, current assets show a gradual recovery and growth, peaking around 15,344 million in December 2020, followed by some variability and a stabilizing trend around 12,000 to 13,000 million in the most recent quarters.

Current liabilities display a distinct pattern of increase and fluctuations throughout the same timeline. Starting from 6,415 million in March 2018, liabilities rise sharply to over 9,434 million by December 2019, demonstrating heightened short-term obligations. While some reductions are visible into early 2021, liabilities again escalate, reaching a peak of 11,587 million by June 2022 before declining slightly to approximately 10,483 million by the first quarter of 2023.

The current ratio, reflecting the ability to cover short-term liabilities with short-term assets, decreases significantly from a strong 2.52 in March 2018 to levels near or just above 1.0 during the years that follow. This ratio remains relatively stable between 1.1 and 1.6 for most of the periods, indicating moderate liquidity without extreme volatility. However, the declining trend from the high ratio early in 2018 to as low as 1.08 by June 2022 suggests a tightening of short-term financial flexibility. The slight uptick to 1.22 by March 2023 could indicate some improvement in liquidity management or asset base augmentation in the short term.

Overall, the data highlights a transition from very high liquidity ratios and assets toward a more moderate and stabilized liquidity position. The company appears to manage increasing current liabilities while maintaining an adequate level of current assets sufficient to meet short-term obligations, albeit with reduced buffers compared to the earliest period observed. This trend may warrant continued monitoring to ensure that liquidity remains sufficient under varying operational and market conditions.

Current Assets

Initial decline in 2018 followed by recovery and relative stabilization around 12–13 billion USD in recent quarters.

Current Liabilities

General upward trajectory with peaks around mid-2022, reflecting increased short-term financial commitments.

Current Ratio

Significant decrease from 2.52 in early 2018 to around 1.1–1.6 in subsequent periods, indicating reduced liquidity buffers but generally adequate short-term coverage.

Total Quick Assets

The total quick assets present a fluctuating trend over the analyzed periods. Beginning at a high level of 15,479 million USD in the first quarter of 2018, the figure experienced a sharp decline to around 8,626 million USD by the second quarter of 2018 and remained relatively stable near that level through the end of 2019. A notable recovery occurred in 2020, with quick assets rising to a peak of 12,676 million USD in the third quarter before slightly declining and stabilizing around the 10,000 to 11,000 million USD range in 2021 through early 2023. The overall pattern indicates volatility in liquid asset management during the early years, followed by relative stabilization in more recent periods.

Current Liabilities

Current liabilities displayed a general upward trend across the timeframe. Starting at 6,415 million USD in early 2018, liabilities gradually increased, reaching above 9,000 million USD by the end of 2019. The figures fluctuated somewhat during 2020 and 2021 but tended to climb further, peaking around 11,587 million USD in the fourth quarter of 2022 before a slight reduction to 10,483 million USD in the first quarter of 2023. This gradual increase in liabilities suggests growing short-term obligations, which may affect liquidity.

Quick Ratio

The quick ratio exhibited significant variability over the period. It started at a strong 2.41 in the first quarter of 2018, indicating a high level of liquid assets relative to current liabilities. However, the ratio declined sharply to below 1.0 by late 2018, fluctuating marginally around this threshold through 2019. Improvement was observed throughout 2020 and early 2021, where the quick ratio peaked near 1.31, reflecting better liquidity. The ratio then slipped again below 1.0 toward the end of 2022, falling to a low of 0.87 before recovering slightly above 1.0 at the start of 2023. The fluctuations highlight variations in asset liquidity relative to obligations and may point to periods of tighter liquidity management.

Summary

The data show a dynamic liquidity position characterized by an initial drop in quick assets paired with rising current liabilities, negatively impacting the quick ratio through 2018 and 2019. The recovery of quick assets and improvement in the quick ratio during 2020 and early 2021 suggest enhanced liquidity management or asset acquisition during that period. The subsequent decline in the quick ratio toward late 2022 indicates potential liquidity pressures or shifts in the composition of current liabilities and assets. These trends emphasize the importance of monitoring short-term financial stability closely in response to changing operational or market conditions.

The analysis of the presented financial data reveals several key trends and insights regarding liquidity and short-term financial position over the examined period.

Total Cash Assets (in US$ millions)

The total cash assets show significant volatility across the quarters. Initially, there is a notable decline from 10,369 million USD at the end of Q1 2018 to a low of 755 million USD by the end of Q1 2019. This is followed by a general upward trend throughout 2020, peaking at approximately 4,995 million USD in Q3 2020. The cash levels then fluctuate moderately from 2021 through early 2023, decreasing again towards the latter part of 2022 before a slight recovery by Q1 2023, where the figure stands at 2,495 million USD. This pattern suggests periods of cash accumulation followed by drawdowns, which may reflect operational cycles, investment activities, or changes in working capital management.

Current Liabilities (in US$ millions)

Current liabilities have steadily increased over the observed periods, rising from 6,415 million USD in Q1 2018 to a peak of 11,587 million USD in Q4 2022. Although there is a slight decline in Q1 2023 to 10,483 million USD, the upward trend is clear. The increase in current liabilities could indicate expanding short-term obligations, possibly due to higher operational expenses, increased borrowing, or supplier credit. This trend juxtaposed with the fluctuating cash levels suggests growing pressure on liquidity.

Cash Ratio (ratio)

The cash ratio, which measures the company's ability to cover current liabilities with cash and cash equivalents, starts at a high level of 1.62 in Q1 2018 but experiences a sharp decline to 0.09 by Q1 2019. This drastic drop aligns with the decrease in total cash assets while current liabilities increased. Subsequently, there is a gradual recovery from mid-2019 through 2020, reaching a peak of 0.51 in Q4 2020, indicating an improvement in short-term liquidity. However, post-2020, the cash ratio begins a declining trend again, falling to a low of 0.13 in Q3 2022 before a modest rise to 0.24 by Q1 2023. The persistently low cash ratio in recent years highlights potential liquidity concerns and a reduced buffer to meet immediate obligations solely through cash.

Overall, the data reveals a company experiencing fluctuations in cash reserves amidst steadily increasing current liabilities, resulting in a generally weakened cash liquidity position over time. While cash levels have periodically increased, they have not kept pace with the growth in current liabilities, as evidenced by the declining cash ratio. This pattern may warrant careful liquidity management and consideration of financing strategies to ensure adequate coverage of short-term obligations.