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Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider Garmin Ltd. (NASDAQ:GRMN). With a market valuation of US$16b, GRMN is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for GRMN to determine is solvency and liquidity and whether the stock is a sound investment.
Does GRMN face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Garmin has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with GRMN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does GRMN’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Garmin has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$921m, the company has been able to meet these commitments with a current assets level of US$2.7b, leading to a 2.89x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Consumer Durables companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
GRMN has no debt in addition to ample cash to cover its short-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I'm sure GRMN has company-specific issues impacting its capital structure decisions. You should continue to research Garmin to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GRMN’s future growth? Take a look at our free research report of analyst consensus for GRMN’s outlook.
- Valuation: What is GRMN 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 GRMN 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.