Franco-Nevada Corporation (TSE:FNV), a large-cap worth CA$15.9b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for FNV to determine is solvency and liquidity and whether the stock is a sound investment.
Does FNV face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Franco-Nevada 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 FNV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can FNV meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Franco-Nevada 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. At the current liabilities level of US$22m liabilities, the company has been able to meet these commitments with a current assets level of US$180m, leading to a 8.37x current account ratio. Having said that, many consider anything above 3x to be quite high and could mean that FNV has too much idle capital in low-earning investments.
FNV has no debt in addition to ample cash to cover its short-term liabilities. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I’m sure FNV has company-specific issues impacting its capital structure decisions. I recommend 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.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.