Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Align Technology Inc., liquidity ratios
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Current ratio | 1.26 | 1.30 | 1.40 | 1.68 | 1.88 | |
| Quick ratio | 0.97 | 1.08 | 1.22 | 1.46 | 1.70 | |
| Cash ratio | 0.52 | 0.61 | 0.72 | 0.89 | 1.06 |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
The financial ratios demonstrate a consistent downward trend over the analyzed five-year period, indicating a gradual decrease in liquidity.
- Current ratio
- The current ratio declined from 1.88 in 2018 to 1.26 in 2022. This suggests a reduction in the company’s ability to cover its short-term liabilities with its short-term assets over time, potentially indicating a tighter liquidity position.
- Quick ratio
- The quick ratio also decreased steadily from 1.7 in 2018 to 0.97 in 2022. This ratio, which excludes inventory from current assets, shows a diminishing capacity to meet immediate liabilities without relying on inventory sales, highlighting a weakening short-term financial health.
- Cash ratio
- The cash ratio exhibited a continuous decline from 1.06 in 2018 to 0.52 in 2022, reflecting reduced cash and cash equivalents availability relative to current liabilities. This points to a lower level of highly liquid assets to cover short-term obligations, emphasizing a further tightening of liquidity.
Overall, the consistent decreases across all three liquidity ratios indicate that the company’s short-term financial flexibility and ability to cover liabilities with readily available assets have diminished steadily during this period. This trend may warrant attention to ensure ongoing operational stability and effective management of working capital.
Current Ratio
Align Technology Inc., current ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Current assets | 2,424,391) | 2,494,075) | 1,849,538) | 1,633,419) | 1,302,479) | |
| Current liabilities | 1,925,887) | 1,924,071) | 1,325,601) | 970,970) | 692,073) | |
| Liquidity Ratio | ||||||
| Current ratio1 | 1.26 | 1.30 | 1.40 | 1.68 | 1.88 | |
| Benchmarks | ||||||
| Current Ratio, Competitors2 | ||||||
| Abbott Laboratories | 1.63 | 1.85 | 1.72 | — | — | |
| Elevance Health Inc. | 1.40 | 1.47 | 1.55 | — | — | |
| Intuitive Surgical Inc. | 4.40 | 5.08 | 6.86 | — | — | |
| Medtronic PLC | 1.86 | 2.65 | 2.13 | — | — | |
| UnitedHealth Group Inc. | 0.77 | 0.79 | 0.74 | — | — | |
| Current Ratio, Sector | ||||||
| Health Care Equipment & Services | 1.13 | 1.22 | 1.19 | — | — | |
| Current Ratio, Industry | ||||||
| Health Care | 1.23 | 1.31 | 1.30 | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Current ratio = Current assets ÷ Current liabilities
= 2,424,391 ÷ 1,925,887 = 1.26
2 Click competitor name to see calculations.
The financial data reveals notable trends in current assets, current liabilities, and the current ratio over the five-year period ending December 31, 2022.
- Current Assets
- Current assets demonstrated a consistent upward trend from 2018 to 2021, increasing from approximately $1.30 billion to nearly $2.49 billion. However, in 2022, there was a slight decline to around $2.42 billion, indicating a possible stabilization or minor reduction in liquid resources or short-term assets available to the company.
- Current Liabilities
- Current liabilities exhibited a more pronounced increase over the same period. Beginning at approximately $692 million in 2018, liabilities more than doubled by 2022, reaching nearly $1.93 billion. This significant rise suggests increased obligations or short-term debts that the company must address within the fiscal year.
- Current Ratio
- The current ratio decreased steadily from 1.88 in 2018 to 1.26 in 2022. This decline implies a gradual reduction in the company's short-term liquidity position, reflecting a smaller buffer of current assets relative to current liabilities. While a ratio above 1 still indicates that current assets exceed current liabilities, the narrowing margin over time warrants attention to potential liquidity risks.
Overall, the data points to a scenario where liability growth outpaces asset growth, impacting the company's liquidity position. The slight drop in current assets coupled with a strong increase in current liabilities has reduced the current ratio, signaling a trend towards tighter short-term financial flexibility. Management may need to evaluate strategies to enhance asset liquidity or manage liabilities to sustain operational stability.
Quick Ratio
Align Technology Inc., quick ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Cash and cash equivalents | 942,050) | 1,099,370) | 960,843) | 550,425) | 636,899) | |
| Marketable securities, short-term | 57,534) | 71,972) | —) | 318,202) | 98,460) | |
| Accounts receivable, net of allowance for doubtful accounts | 859,685) | 897,198) | 657,704) | 550,291) | 439,009) | |
| Total quick assets | 1,859,269) | 2,068,540) | 1,618,547) | 1,418,918) | 1,174,368) | |
| Current liabilities | 1,925,887) | 1,924,071) | 1,325,601) | 970,970) | 692,073) | |
| Liquidity Ratio | ||||||
| Quick ratio1 | 0.97 | 1.08 | 1.22 | 1.46 | 1.70 | |
| Benchmarks | ||||||
| Quick Ratio, Competitors2 | ||||||
| Abbott Laboratories | 1.06 | 1.28 | 1.14 | — | — | |
| Elevance Health Inc. | 1.27 | 1.33 | 1.42 | — | — | |
| Intuitive Surgical Inc. | 3.56 | 4.34 | 5.96 | — | — | |
| Medtronic PLC | 1.30 | 1.91 | 1.50 | — | — | |
| UnitedHealth Group Inc. | 0.70 | 0.72 | 0.68 | — | — | |
| Quick Ratio, Sector | ||||||
| Health Care Equipment & Services | 0.95 | 1.04 | 1.01 | — | — | |
| Quick Ratio, Industry | ||||||
| Health Care | 0.93 | 1.00 | 0.99 | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 1,859,269 ÷ 1,925,887 = 0.97
2 Click competitor name to see calculations.
The financial data over the five-year period exhibits distinct trends in liquidity and short-term financial health, centered on key indicators such as total quick assets, current liabilities, and the quick ratio.
- Total Quick Assets
- The total quick assets have shown a consistent increase from 1,174,368 thousand USD at the end of 2018 to a peak of 2,068,540 thousand USD by the end of 2021. However, in 2022, there is a slight decline to 1,859,269 thousand USD. This indicates an overall growth in liquid assets available, though the dip in 2022 suggests a reduction in immediately accessible assets.
- Current Liabilities
- The current liabilities have increased substantially throughout the period, rising from 692,073 thousand USD in 2018 to 1,925,887 thousand USD by the end of 2022. The most significant jumps occur between 2019 and 2021, particularly sharp from 1,325,601 thousand USD in 2020 to 1,924,071 thousand USD in 2021, and remaining high thereafter. This escalation signals a considerable growth in short-term obligations.
- Quick Ratio
- The quick ratio has demonstrated a downward trajectory, starting from a relatively robust 1.7 in 2018, progressively declining each year to fall below 1.0 at 0.97 by the end of 2022. Crossing below the threshold of 1.0 suggests that the company’s liquid assets are no longer sufficient to cover current liabilities without relying on inventory, indicating increasing liquidity risk.
In summary, while liquid assets grew notably until 2021, the faster growth in current liabilities has outpaced asset increases, resulting in a decreasing quick ratio over the period. The decline below 1 in the latest year suggests a potential strain on the company’s ability to meet its short-term liabilities with its most liquid resources, meriting closer attention to liquidity management strategies.
Cash Ratio
Align Technology Inc., cash ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Cash and cash equivalents | 942,050) | 1,099,370) | 960,843) | 550,425) | 636,899) | |
| Marketable securities, short-term | 57,534) | 71,972) | —) | 318,202) | 98,460) | |
| Total cash assets | 999,584) | 1,171,342) | 960,843) | 868,627) | 735,359) | |
| Current liabilities | 1,925,887) | 1,924,071) | 1,325,601) | 970,970) | 692,073) | |
| Liquidity Ratio | ||||||
| Cash ratio1 | 0.52 | 0.61 | 0.72 | 0.89 | 1.06 | |
| Benchmarks | ||||||
| Cash Ratio, Competitors2 | ||||||
| Abbott Laboratories | 0.66 | 0.78 | 0.60 | — | — | |
| Elevance Health Inc. | 0.86 | 0.95 | 1.04 | — | — | |
| Intuitive Surgical Inc. | 2.90 | 3.66 | 5.30 | — | — | |
| Medtronic PLC | 0.85 | 1.27 | 1.06 | — | — | |
| UnitedHealth Group Inc. | 0.36 | 0.36 | 0.33 | — | — | |
| Cash Ratio, Sector | ||||||
| Health Care Equipment & Services | 0.58 | 0.64 | 0.62 | — | — | |
| Cash Ratio, Industry | ||||||
| Health Care | 0.54 | 0.60 | 0.60 | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 999,584 ÷ 1,925,887 = 0.52
2 Click competitor name to see calculations.
The analysis of the provided financial data reveals several notable trends over the five-year period ending in 2022.
- Total Cash Assets
- The total cash assets exhibit a consistent upward trend from 2018 through 2021, rising from $735,359 thousand in 2018 to a peak of $1,171,342 thousand in 2021. However, in 2022, there is a decline to $999,584 thousand, indicating a reduction in cash reserves after several years of growth.
- Current Liabilities
- Current liabilities show a marked increase across the entire period. Starting at $692,073 thousand in 2018, they surge to nearly threefold by the end of 2021 at $1,924,071 thousand, and slightly rise further to $1,925,887 thousand in 2022. This continuous escalation suggests growing short-term obligations are placing increasing demands on liquidity.
- Cash Ratio
- The cash ratio, which measures the ability to cover current liabilities with cash and cash equivalents, displays a steady decline from 1.06 in 2018 to 0.52 in 2022. This indicates a weakening liquidity position over time, with the company holding less than full coverage of its current liabilities by cash assets in the latest year. The trend reflects that the company's cash growth has not kept pace with its rising current liabilities.
Overall, the financial patterns suggest that while cash assets increased notably through 2021, the sharper rise in current liabilities has eroded the company’s immediate liquidity cushion. The decrease in the cash ratio to below 1.0 highlights a movement away from a conservative liquidity stance, which may warrant monitoring for potential liquidity risks moving forward.