Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Reynolds American Inc., liquidity ratios
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Current ratio | 0.85 | 1.17 | 0.94 | 1.19 | 1.28 | |
| Quick ratio | 0.45 | 0.54 | 0.32 | 0.56 | 0.72 | |
| Cash ratio | 0.41 | 0.51 | 0.27 | 0.49 | 0.66 |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
An analysis of the liquidity position between 2012 and 2016 reveals a general downward trajectory in the ability to cover short-term obligations, punctuated by a significant contraction in 2014 and a partial recovery in 2015.
- Current Ratio
- The current ratio exhibited a volatile decline, decreasing from 1.28 in 2012 to 0.85 by the end of 2016. A notable breach of the 1.0 threshold occurred in 2014 (0.94) and again in 2016, suggesting that current liabilities exceeded current assets during these specific periods.
- Quick Ratio
- The quick ratio followed a consistent descending pattern, starting at 0.72 in 2012 and ending at 0.45 in 2016. The most acute decline was recorded in 2014, where the ratio dropped to 0.32, indicating a tightened liquidity position when excluding inventory from current assets.
- Cash Ratio
- The cash ratio mirrored the trends observed in the quick ratio, declining from 0.66 in 2012 to 0.41 in 2016. The sharp decrease to 0.27 in 2014 aligns with the broader liquidity contraction observed across all measured metrics during that fiscal year.
The narrow variance between the quick ratio and the cash ratio indicates that inventory constitutes a relatively small portion of the current asset base. Although a temporary recovery in liquidity was observed in 2015, the subsequent decline in 2016 suggests a continuing trend of diminished short-term solvency.
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Current Ratio
Reynolds American Inc., current ratio calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current assets | 4,238) | 6,187) | 3,323) | 3,655) | 4,812) | |
| Current liabilities | 4,985) | 5,291) | 3,544) | 3,076) | 3,769) | |
| Liquidity Ratio | ||||||
| Current ratio1 | 0.85 | 1.17 | 0.94 | 1.19 | 1.28 | |
| Benchmarks | ||||||
| Current Ratio, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Current ratio = Current assets ÷ Current liabilities
= 4,238 ÷ 4,985 = 0.85
2 Click competitor name to see calculations.
The current ratio demonstrates a fluctuating trend from 2012 to 2016, reflecting instability in the short-term liquidity position. The period began with a coverage ratio above 1.0, which progressively declined, falling below the critical threshold in 2014, recovering temporarily in 2015, and reaching its lowest point by the end of 2016.
- Current Asset Volatility
- Current assets experienced a steady decline between 2012 and 2014, dropping from US$ 4,812 million to US$ 3,323 million. This was followed by a significant surge in 2015 to US$ 6,187 million before contracting again to US$ 4,238 million in 2016.
- Current Liability Expansion
- Current liabilities showed an overall upward trajectory over the five-year period. Following a brief decrease in 2013, liabilities rose from US$ 3,076 million to US$ 4,985 million by 2016, indicating a substantial increase in short-term obligations.
- Current Ratio Analysis
- The current ratio decreased from 1.28 in 2012 to 0.85 in 2016. The breach of the 1.0 mark in 2014 and 2016 indicates periods where current liabilities exceeded current assets. The temporary recovery to 1.17 in 2015 was driven by a simultaneous spike in both assets and liabilities, rather than a sustained improvement in liquidity management.
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Quick Ratio
Reynolds American Inc., quick ratio calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash and cash equivalents | 2,051) | 2,567) | 966) | 1,500) | 2,502) | |
| Short-term investments | —) | 149) | —) | —) | —) | |
| Accounts receivable | 66) | 68) | 116) | 106) | 87) | |
| Accounts receivable, related party | 113) | 38) | 41) | 56) | 61) | |
| Notes receivable | —) | —) | —) | 37) | 35) | |
| Other receivables | 10) | 35) | 12) | 16) | 16) | |
| Total quick assets | 2,240) | 2,857) | 1,135) | 1,715) | 2,701) | |
| Current liabilities | 4,985) | 5,291) | 3,544) | 3,076) | 3,769) | |
| Liquidity Ratio | ||||||
| Quick ratio1 | 0.45 | 0.54 | 0.32 | 0.56 | 0.72 | |
| Benchmarks | ||||||
| Quick Ratio, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 2,240 ÷ 4,985 = 0.45
2 Click competitor name to see calculations.
The liquidity position exhibited significant volatility between 2012 and 2016, characterized by a general decline in the capacity to meet short-term obligations using the most liquid assets. The quick ratio remained consistently below 1.0 throughout the observed period, indicating a persistent reliance on other current assets or external financing to settle current liabilities.
- Quick Asset Trends
- Total quick assets fluctuated markedly, beginning at US$ 2,701 million in 2012 and reaching a period low of US$ 1,135 million in 2014. A substantial increase was recorded in 2015, where assets peaked at US$ 2,857 million, before decreasing to US$ 2,240 million by the end of 2016.
- Current Liability Growth
- Current liabilities followed an overall upward trajectory, rising from US$ 3,769 million in 2012 to a peak of US$ 5,291 million in 2015. Despite a slight reduction to US$ 4,985 million in 2016, the overall level of short-term obligations remained significantly higher than the baseline established in 2012.
- Quick Ratio Analysis
- The quick ratio showed a steady downward trend from 0.72 in 2012 to a minimum of 0.32 in 2014. A temporary recovery to 0.54 occurred in 2015, driven by the spike in quick assets, but the ratio subsequently declined to 0.45 in 2016. This pattern suggests a tightening of immediate liquidity over the five-year span.
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Cash Ratio
Reynolds American Inc., cash ratio calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash and cash equivalents | 2,051) | 2,567) | 966) | 1,500) | 2,502) | |
| Short-term investments | —) | 149) | —) | —) | —) | |
| Total cash assets | 2,051) | 2,716) | 966) | 1,500) | 2,502) | |
| Current liabilities | 4,985) | 5,291) | 3,544) | 3,076) | 3,769) | |
| Liquidity Ratio | ||||||
| Cash ratio1 | 0.41 | 0.51 | 0.27 | 0.49 | 0.66 | |
| Benchmarks | ||||||
| Cash Ratio, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 2,051 ÷ 4,985 = 0.41
2 Click competitor name to see calculations.
The company's liquidity position, as measured by the cash ratio, demonstrated significant volatility between 2012 and 2016, characterized by a sustained decline followed by a partial recovery and subsequent moderation.
- Cash Ratio Trajectory
- The cash ratio experienced a consistent downward trend from 0.66 in 2012 to a period low of 0.27 in 2014. This decline indicates a diminishing capacity to cover immediate current liabilities using only the most liquid assets. A recovery was observed in 2015, with the ratio rising to 0.51, before retreating to 0.41 by the end of 2016.
- Cash Asset Analysis
- Total cash assets saw a substantial reduction during the first three years of the period, falling from 2,502 million USD in 2012 to 966 million USD in 2014. A sharp reversal occurred in 2015, when cash assets surged to a peak of 2,716 million USD, representing a significant infusion of liquidity. This balance subsequently decreased to 2,051 million USD in 2016.
- Current Liability Trends
- Current liabilities exhibited relative stability between 2012 and 2014, ranging from 3,076 million USD to 3,769 million USD. However, a marked increase in short-term obligations occurred in 2015, with liabilities climbing to 5,291 million USD. Although total cash assets also increased during this year, the simultaneous rise in liabilities limited the overall improvement of the cash ratio. A slight reduction in liabilities to 4,985 million USD was noted in 2016.
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