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Is Fisher & Paykel Healthcare Corporation Limited (NZE:FPH) As Strong As Its Balance Sheet Indicates?

Shawn Clark

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH), with a market cap of NZ$7.57B, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. FPH’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into FPH here. Check out our latest analysis for Fisher & Paykel Healthcare

Does FPH generate enough cash through operations?

FPH’s debt levels have fallen from NZ$69.21M to NZ$61.93M over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, FPH’s cash and short-term investments stands at NZ$61.39M for investing into the business. On top of this, FPH has generated cash from operations of NZ$193.57M in the last twelve months, resulting in an operating cash to total debt ratio of 312.58%, meaning that FPH’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In FPH’s case, it is able to generate 3.13x cash from its debt capital.

Can FPH meet its short-term obligations with the cash in hand?

With current liabilities at NZ$145.58M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.4x. For Medical Equipment companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.

NZSE:FPH Historical Debt Mar 23rd 18

Is FPH’s debt level acceptable?

With a debt-to-equity ratio of 12.50%, FPH’s debt level may be seen as prudent. FPH is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if FPH’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For FPH, the ratio of 116x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving FPH ample headroom to grow its debt facilities.

Next Steps:

FPH has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure FPH has company-specific issues impacting its capital structure decisions. I suggest you continue to research Fisher & Paykel Healthcare to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FPH’s future growth? Take a look at our free research report of analyst consensus for FPH’s outlook.
  2. Valuation: What is FPH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FPH is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.