Rockwell Automation Inc (ROK)
Financial leverage ratio
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | ||
|---|---|---|---|---|---|---|
| Total assets | US$ in thousands | 11,304,000 | 10,758,700 | 10,701,600 | 7,264,700 | 6,113,000 |
| Total stockholders’ equity | US$ in thousands | 3,561,600 | 2,725,600 | 2,389,600 | 1,027,800 | 404,200 |
| Financial leverage ratio | 3.17 | 3.95 | 4.48 | 7.07 | 15.12 |
September 30, 2023 calculation
Financial leverage ratio = Total assets ÷ Total stockholders’ equity
= $11,304,000K ÷ $3,561,600K
= 3.17
The financial leverage ratio measures a company's use of debt to finance its operations and the extent to which it relies on creditors rather than shareholders. A higher financial leverage ratio indicates a higher level of debt relative to equity, which can magnify returns but also increase the risk.
In the case of Rockwell Automation Inc, the financial leverage ratio has shown a declining trend over the past five years. In 2019, the ratio was significantly high at 15.12, indicating a heavy reliance on debt to finance the company's operations. However, the company has since made significant progress in reducing its leverage, with the ratio declining to 7.07 in 2020, 4.48 in 2021, 3.95 in 2022, and further to 3.17 in 2023.
This improvement suggests that Rockwell Automation Inc has been actively managing its capital structure by reducing its reliance on debt financing and potentially increasing its equity base. A declining financial leverage ratio can be seen as a positive development, as it indicates a lower risk of financial distress and greater financial stability for the company.
The decreasing trend in the financial leverage ratio may also indicate that the company's profitability and cash flow generation have been sufficient to support its operations and growth without having to heavily resort to debt financing. This demonstrates a solid financial management strategy and a healthier balance sheet structure, which can enhance the company's ability to weather economic downturns and pursue strategic initiatives.
In conclusion, the declining financial leverage ratio for Rockwell Automation Inc over the past five years reflects a positive trend in terms of its capital structure and financial risk management. It signifies a reduced reliance on debt financing and a stronger equity position, which ultimately contributes to the company's financial stability and resilience.
Peer comparison
Sep 30, 2023