Trane Technologies plc (NYSE:TT)

Current Ratio

The current ratio exhibits fluctuations over the five-year period. Starting at 1.33 in 2018, it slightly decreased to 1.28 in 2019, then increased notably to 1.59 in 2020. Subsequently, it declined to 1.36 in 2021 and further to 1.12 in 2022. This pattern suggests variability in short-term liquidity, with a peak in 2020 followed by a downward trend, indicating potentially tighter liquidity conditions towards the end of the period.

Quick Ratio

The quick ratio follows a similar trend but with more pronounced changes. Beginning at 0.83 in 2018, it remained relatively stable through 2019, then rose sharply to 1.27 in 2020. After 2020, it declined to 0.97 in 2021 and further decreased to 0.7 in 2022. This decrease after the 2020 peak suggests a reduction in the company's ability to cover current liabilities with its most liquid assets excluding inventories, indicating a weakening immediate liquidity position in the later years.

Cash Ratio

The cash ratio shows the most volatility among the three liquidity ratios. Starting at a low 0.21 in 2018, it increased somewhat in 2019 to 0.27 and surged significantly to 0.76 in 2020. This was followed by a decline to 0.45 in 2021 and then a reduction back to 0.21 in 2022, returning to its initial level. This fluctuation reflects changing levels of cash and cash equivalents relative to current liabilities, with the sharp peak in 2020 possibly indicating a temporary accumulation of cash reserves that were subsequently reduced.

Summary

Across all ratios, there is a clear trend of improvement in liquidity metrics peaking in 2020, followed by a decline through 2021 and 2022. The peak in 2020 suggests an enhanced liquidity position, likely as a response to specific external conditions or internal management strategies during that year. However, the decline in subsequent years points to tightening liquidity and a reduced ability to cover short-term obligations purely with liquid assets, which may warrant further monitoring and analysis to ensure financial stability.

The analysis of the annual financial data for the company reveals the following trends and patterns over the period from December 31, 2018, to December 31, 2022.

Current Assets

The current assets showed an overall increasing trend from 2018 through 2020, rising from 5,732,000 US$ in thousands to 6,905,600 US$ in thousands. This indicates an enhancement in the company’s short-term asset base during this period. However, there was a decline in current assets in 2021, dropping to 6,470,900 US$ in thousands and a slight further decrease in 2022 to 6,379,200 US$ in thousands. These declines suggest a pullback or reduced liquidity in current assets in the last two years of the period.

Current Liabilities

Current liabilities fluctuated over the analyzed period. Starting at 4,315,700 US$ in thousands in 2018, liabilities increased substantially in 2019 to 4,861,900 US$ in thousands, then declined notably to 4,338,900 US$ in thousands by 2020. A rise was observed again in 2021 to 4,752,400 US$ in thousands, followed by a more pronounced increase in 2022 reaching 5,686,800 US$ in thousands. The upward trend in the final year indicates growing short-term financial obligations.

Current Ratio

The current ratio, a key measure of short-term liquidity, demonstrated variability during the time frame. It started at 1.33 in 2018 and decreased slightly to 1.28 in 2019, signaling marginally reduced liquidity. In 2020, the current ratio improved significantly to 1.59, indicating a strong short-term financial position relative to liabilities. However, this improvement was not sustained; the ratio decreased to 1.36 in 2021 and further declined to 1.12 by 2022. The continuous decline in the last two years suggests tightening liquidity and potentially increased risk associated with meeting short-term liabilities.

Overall, the financial data reflects a period of improving liquidity and asset accumulation until 2020, followed by a reversal marked by decreasing asset levels, increasing liabilities, and weakening liquidity ratios through 2022. This pattern may warrant closer examination of the factors contributing to rising current liabilities and diminishing current assets to assess short-term financial stability.

Total quick assets

The total quick assets demonstrated an overall upward trend from 2018 to 2020, increasing from 3,582,600 thousand US dollars to a peak of 5,492,000 thousand US dollars in 2020. Subsequently, there was a decline in 2021 to 4,588,600 thousand US dollars, followed by a further decrease in 2022 to 4,000,600 thousand US dollars. This indicates that while liquidity resources improved initially, they weakened over the last two years reported.

Current liabilities

Current liabilities showed fluctuations over the years, starting at 4,315,700 thousand US dollars in 2018 and rising to 4,861,900 thousand US dollars in 2019. A significant decrease occurred in 2020 to 4,338,900 thousand US dollars, followed by an increase to 4,752,400 thousand US dollars in 2021. In 2022, liabilities further increased notably to 5,686,800 thousand US dollars. This suggests increasing short-term obligations in the latter part of the period, which may impose greater pressure on the company’s liquidity.

Quick ratio

The quick ratio exhibited volatility throughout the years analyzed. It was relatively stable and below 1.0 during 2018 and 2019 at 0.83 and 0.84 respectively, indicating limited immediate liquidity. In 2020, the ratio improved significantly to 1.27, suggesting stronger short-term solvency. However, this improvement was not sustained, as the ratio dropped back below 1.0 in 2021 to 0.97, and further declined to 0.7 in 2022. These movements reflect a deteriorating ability to cover current liabilities with the most liquid assets in the recent period.

Summary

The data reveals an initial strengthening of liquidity in 2020 as shown by peak quick assets and the highest quick ratio, coupled with a reduction in current liabilities. However, this improvement was short-lived. Since 2021, quick assets have declined while current liabilities have increased considerably, leading to a worsening quick ratio by 2022. Overall, the trends point toward a decline in the company’s immediate liquidity and short-term financial flexibility over the most recent years.

The financial data over the five-year period reveals notable fluctuations in liquidity and short-term financial obligations. The total cash assets experienced a significant increase from 2018 to 2020, rising from 903,400 thousand US dollars to a peak of 3,289,900 thousand US dollars in 2020. However, this upward trend reversed in subsequent years, with cash assets decreasing to 2,159,200 thousand US dollars in 2021 and further declining to 1,220,500 thousand US dollars by the end of 2022.

Current liabilities demonstrated an overall increasing trend, starting at 4,315,700 thousand US dollars in 2018 and ending at 5,686,800 thousand US dollars in 2022. Although there was a dip in 2020 to 4,338,900 thousand US dollars from the previous year, liabilities increased again in 2021 and 2022, reaching their highest level within the reviewed period.

The cash ratio, which measures liquidity by comparing cash assets to current liabilities, reflected the trends seen in cash assets and liabilities. The ratio increased from 0.21 in 2018 to a peak of 0.76 in 2020, indicating a strong liquidity position during that year. Subsequently, the ratio decreased to 0.45 in 2021 and further declined to 0.21 in 2022, returning to the same level observed at the beginning of the period. This decrease signifies a reduction in liquid assets relative to current liabilities, potentially indicating tightened liquidity conditions.

Summary of trends

The analysis points to a period of improved liquidity culminating in 2020, followed by a decline toward the end of the period. The increasing current liabilities suggest growing short-term obligations, which, combined with declining cash assets and a falling cash ratio, may warrant closer management focus on liquidity and working capital efficiency going forward.