Phillips 66 (NYSE:PSX)

The liquidity position from 2015 through 2019 exhibits a general downward trajectory, characterized by a reduction in the margin of safety available to meet short-term obligations.

Current Ratio

The current ratio declined from a peak of 1.63 in 2015 to 1.24 by the end of 2019. Although the ratio remained above 1.0 throughout the entire period, indicating that current assets continued to exceed current liabilities, the overall trend suggests a tightening of working capital liquidity.

Quick Ratio

The quick ratio demonstrates a similar pattern of contraction, starting at 1.10 in 2015 and ending at 0.87 in 2019. The drop below the 1.0 threshold in 2016 and again in 2019 indicates that in those years, the most liquid assets—excluding inventory—were insufficient to cover all current liabilities.

Cash Ratio

The cash ratio shows the most pronounced decline, falling from 0.41 in 2015 to 0.14 in 2019. This sharp decrease reflects a substantial reduction in the proportion of cash and cash equivalents held relative to current liabilities, particularly in the final year of the analyzed period.

The simultaneous decline across all three metrics indicates a consistent reduction in short-term liquidity. The increasing gap between the current ratio and the quick ratio toward 2019 suggests a higher reliance on inventory to support the overall liquidity profile.

Between 2015 and 2019, the liquidity position experienced a general compression, characterized by a decline in the current ratio despite an overall increase in current assets. While total current assets grew from 12,256 million US$ to 14,395 million US$, current liabilities rose more significantly, increasing from 7,531 million US$ to 11,646 million US$ over the same period.

Current Ratio Trend

The current ratio declined from 1.63 in 2015 to 1.24 in 2019. An initial sharp decrease was observed in 2016, dropping to 1.34. This was followed by a period of gradual improvement, reaching 1.48 by 2018, before falling to the period low of 1.24 in 2019.

Current Asset and Liability Dynamics

Current assets peaked in 2017 at 14,390 million US$ before a temporary contraction in 2018. Conversely, current liabilities exhibited a general upward trajectory, with a particularly sharp increase in 2019. This surge in short-term obligations acted as the primary driver for the reduction in the current ratio during the final year of the analysis.

Short-term Solvency Observation

The fluctuations in the current ratio indicate varying levels of liquidity. The compression observed by 2019 suggests a reduced margin of safety for meeting short-term obligations compared to the more robust position maintained in 2015.

The liquidity position from 2015 to 2019 reveals a general deterioration in the immediate capacity to meet short-term obligations without relying on inventory sales. While total quick assets experienced fluctuations, the growth in current liabilities outpaced asset accumulation toward the end of the period, resulting in a downward trend for the quick ratio.

Quick Ratio Trajectory

The quick ratio transitioned from a position of strength at 1.10 in 2015 to a low of 0.87 by 2019. A period of relative stability was observed between 2017 and 2018, with the ratio remaining slightly above 1.00, before a significant decline occurred in 2019. This final decrease indicates that quick assets are no longer sufficient to cover current liabilities on a one-to-one basis.

Quick Asset Dynamics

Total quick assets exhibited a non-linear growth pattern, increasing from 8,247 million US$ in 2015 to a peak of 10,625 million US$ in 2017. Although a contraction occurred in 2018, assets recovered to 10,124 million US$ by 2019. Despite this overall increase in liquid resources, the growth was insufficient to offset the rising obligations.

Current Liability Expansion

Current liabilities demonstrated a substantial upward trend, rising from 7,531 million US$ in 2015 to 11,646 million US$ in 2019. The most acute increase took place between 2018 and 2019, where liabilities grew by approximately 2,711 million US$. This sharp rise in short-term debt and obligations is the primary driver behind the compression of the liquidity ratio in the final year of the analysis.

Between 2015 and 2019, the immediate liquidity position exhibited a general deterioration, characterized by a significant contraction in available cash assets paired with an increase in short-term obligations.

Cash Asset Trends

Total cash assets remained relatively stable from 2015 through 2018, fluctuating within a range of US$ 2,711 million to US$ 3,119 million. However, a substantial decrease occurred by December 31, 2019, when assets fell to US$ 1,614 million, representing a decline of approximately 46% compared to the prior year.

Current Liabilities Trajectory

Short-term liabilities followed an overall upward trajectory, increasing from US$ 7,531 million in 2015 to US$ 11,646 million by 2019. Despite a moderate reduction in 2018 to US$ 8,935 million, the sharp increase in the final year of the period indicates a heightened level of immediate financial commitments.

Cash Ratio Interpretation

The cash ratio demonstrated significant volatility, starting at 0.41 in 2015 and ending at a period low of 0.14 in 2019. Following an initial decline to 0.29 in 2016, the ratio showed a modest recovery to 0.34 by 2018. This positive trend was reversed abruptly in 2019, reflecting a diminished capacity to satisfy current liabilities using only the most liquid assets.