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With a market capitalization of UK£7.6b, Halma plc (LON:HLMA) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public 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. Assessing the most recent data for HLMA, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
HLMA’s Debt (And Cash Flows)
HLMA's debt levels have fallen from UK£291m to UK£263m over the last 12 months , which includes long-term debt. With this reduction in debt, HLMA currently has UK£81m remaining in cash and short-term investments to keep the business going. Moreover, HLMA has generated UK£219m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 83%, meaning that HLMA’s operating cash is sufficient to cover its debt.
Does HLMA’s liquid assets cover its short-term commitments?
With current liabilities at UK£213m, it appears that the company has been able to meet these commitments with a current assets level of UK£486m, leading to a 2.28x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HLMA service its debt comfortably?
HLMA’s level of debt is appropriate relative to its total equity, at 27%. This range is considered safe as HLMA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether HLMA is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For HLMA, the ratio of 25.48x suggests that interest is amply covered. Large-cap investments like HLMA are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
HLMA’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how HLMA has been performing in the past. I suggest you continue to research Halma to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HLMA’s future growth? Take a look at our free research report of analyst consensus for HLMA’s outlook.
- Valuation: What is HLMA 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 HLMA 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.