Parker-Hannifin Corporation (PH)
Solvency ratios
| Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | |
|---|---|---|---|---|---|
| Debt-to-assets ratio | 0.29 | 0.29 | 0.38 | 0.32 | 0.38 |
| Debt-to-capital ratio | 0.41 | 0.46 | 0.52 | 0.44 | 0.55 |
| Debt-to-equity ratio | 0.70 | 0.85 | 1.10 | 0.78 | 1.23 |
| Financial leverage ratio | 2.43 | 2.90 | 2.93 | 2.42 | 3.19 |
The solvency ratios of Parker-Hannifin Corporation provide insights into the company's ability to meet its long-term financial obligations and the extent of financial leverage.
1. Debt-to-assets ratio:
- The debt-to-assets ratio has remained relatively stable over the past five years, ranging between 0.29 and 0.38. This indicates that, on average, about 29% to 38% of the company's total assets are funded by debt.
- A lower debt-to-assets ratio is generally favorable as it suggests lower reliance on debt financing for asset acquisition and indicates a stronger financial position.
2. Debt-to-capital ratio:
- The debt-to-capital ratio shows the proportion of a company's capital structure that is financed by debt. Parker-Hannifin's ratio has fluctuated between 0.41 and 0.55 over the last five years.
- The decreasing trend in the debt-to-capital ratio from 0.55 in 2020 to 0.41 in 2024 indicates a decreasing reliance on debt financing in the company's capital structure.
3. Debt-to-equity ratio:
- The debt-to-equity ratio measures the extent to which a company's operations are funded by debt versus shareholders' equity. Parker-Hannifin's ratio has varied from 0.70 to 1.23 in the last five years.
- Generally, a lower debt-to-equity ratio indicates less financial risk and a stronger solvency position. The decreasing trend in this ratio from 1.23 in 2020 to 0.70 in 2024 suggests a reduction in the company's financial leverage.
4. Financial leverage ratio:
- The financial leverage ratio indicates the extent to which a company uses debt to finance its operations. Parker-Hannifin's ratio has ranged from 2.42 to 3.19 over the past five years.
- A lower financial leverage ratio is preferable as it signifies lower financial risk and indicates that the company is less reliant on debt financing.
Overall, the solvency ratios of Parker-Hannifin Corporation show a decreasing trend in its reliance on debt financing and improvement in its overall solvency position over the last five years. The company appears to be gradually strengthening its financial position and reducing its financial risk through better management of its capital structure.
Coverage ratios
| Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | |
|---|---|---|---|---|---|
| Interest coverage | 8.03 | 5.67 | 7.32 | 9.98 | 5.89 |
The interest coverage ratio measures a company's ability to meet its interest obligations on outstanding debt. A higher ratio indicates a stronger ability to cover interest payments from operating profits.
Looking at Parker-Hannifin Corporation's interest coverage ratio over the past five years, we observe fluctuations. In June 2024, the interest coverage ratio stands at 8.03, which indicates that the company earned 8.03 times the amount needed to cover its interest expenses. This represents an increase from the previous year's ratio of 5.67.
Comparing this ratio with the figures from 2022 and 2021, we see that the company's ability to cover interest expenses has shown some variability. In 2021, the interest coverage ratio was 9.98, reflecting a high level of cushion in meeting interest obligations. However, this ratio dipped in 2022 to 7.32 before rebounding in 2023 and 2024.
Overall, a higher interest coverage ratio provides a favorable indication of Parker-Hannifin Corporation's financial stability and ability to comfortably meet its interest payments from operating earnings. Investors and creditors may find the improving trend in the interest coverage ratio over the past few years reassuring, suggesting the company's capacity to service its debt and maintain financial health.