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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Franco-Nevada Corporation (TSE:FNV). With a market valuation of CA$18b, FNV is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for FNV, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
FNV’s Debt (And Cash Flows)
Over the past year, FNV has borrowed debt capital of around US$208m – which includes long-term debt. With this increase in debt, FNV currently has US$70m remaining in cash and short-term investments , ready to be used for running the business. Additionally, FNV has produced US$475m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 229%, meaning that FNV’s operating cash is sufficient to cover its debt.
Can FNV meet its short-term obligations with the cash in hand?
At the current liabilities level of US$25m, it appears that the company has been able to meet these commitments with a current assets level of US$179m, leading to a 7.14x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Does FNV face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. FNV’s level of debt is low relative to its total equity, at 4.5%. FNV is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
FNV’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure FNV has company-specific issues impacting its capital structure decisions. I suggest you continue to research Franco-Nevada to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FNV’s future growth? Take a look at our free research report of analyst consensus for FNV’s outlook.
- Valuation: What is FNV 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 FNV is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.