Today, we bring you an overview of the current ratio of Croatian blue chip companies, based on the data from FY 2022 results.
Firstly, the current ratio, also known as the liquidity ratio, shows us how well a company is able to pay its short-term obligations, i.e. within one year. To calculate this ratio, one has to take the current assets of a given company and divide them by short-term liabilities. This would show us how well a company can use its current assets to pay any current debts it might have.
Of course, using this ratio to compare companies in different industries won’t yield satisfactory results, as different industries are used to operating at different levels of current assets or short-term debt. As such, only comparisons between companies in the same industries are viable. One can also look at the industrial average of a select industry, or a peer group of companies in that same industry for comparison.
The current ratio of Croatian blue chips (2022 vs. 2021)
Source: Companies’ data, InterCapital Research
As we can see in the chart above, the highest current ratio is held by Hrvatski Telekom, at 2.98x. Compared to the same period in 2021, this represents a decrease of 7.7%, mainly due to the fact that its current assets increased by 2% (to EUR 692.3m), while its short-term liabilities increased by 11%, to EUR 232.2m. Next up, we have Ericsson NT, which recorded a current ratio of 2.35x, representing a decrease of 7% YoY. Here we can see a similar story as with HT, as ERNT’s current assets increased by 7%, while their short-term liabilities grew by 15%. Following them, we have Podravka, whose current ratio amounted to 2.27x, representing a decrease of 20.2% YoY. Podravka did record a noteworthy increase in current assets, of 31% YoY, but their short-term liabilities increased by 64%, leading to a reduction in the current ratio. Podravka has deceased its exposure to buyers in Russia in Pharma segment by using factoring as a means of collecting receivable. This is one of the reasons why its current assets are growing slower than in the previous period.
Next up, we have the newest addition to the CROBEX10 index, Span. Span recorded a current ratio of 2.17x in 2022, an increase of 3.5% YoY. In fact, out of all the observed companies, Span is one of the two companies to record an increase in the current ratio. This increase came as a result of the increase in current assets, which grew by 15%, while the short-term liabilities increased by 11%.
Without going into the remaining companies in detail, we can point out a few more examples. Atlantic Grupa, which operates in the same industry as Podravka, recorded a current ratio of 1.47x, representing a decrease of only 2.6% YoY. Their current assets increased by 15%, while their short-term liabilities grew by 18%. Compared to Podravka, this is half an increase in current assets and almost a 3.5x less increase in short-term liabilities.
We can also point out the tourism blue chips, i.e. Arena Hospitality Group, Valamar Riviera, and to a large extent, Adris Grupa. In 2022, they recorded current ratios of 1.74x, 1.28x, and 1.32x, respectively. This would represent a change of 12.2%, -23%, and -3.3%, respectively. As we can see in this industry, most of the ratios are quite similar, with Arena able to increase the ratio due to the fact that its current assets grew by 30%, while its short-term liabilities grew by 16%. Valamar on the other hand, recorded a decrease in both their current assets (-28%) and short-term liabilities (-6%), leading to an overall reduction.
Having all of this in mind, one has to take several things into consideration. A decrease in the current ratio in the present period is expected, as companies increase their current assets, mainly due to several reasons. Firstly, higher inventory numbers, as the current macroeconomic situation reduces the disposable incomes of citizens, leading to longer inventory storage times. Secondly, due to the increase in cash & cash equivalents, companies increase their buffer in the situation. Lastly, higher receivables can also be expected, as both clients and other companies require longer time periods to pay the companies in question.
On the other hand, depending on the company and industry, a general increase in obligations can be expected. With higher loan interest rates, higher interest will have to be paid. This is especially true for investment & working capital loans that have to be continually balanced and renewed. In fact, this is something that we have already seen in the statistics from the Croatian National Bank, more of which you can read here.
Overall, none of the companies, whether the select few who saw an improvement or the majority who saw a decrease in the current ratios are currently under any serious threat when it comes to paying off their short-term obligations, despite the economic situation.