All You Need To Know About Suncor Energy Inc’s (TSE:SU) Financial Health
Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Suncor Energy Inc (TSE:SU). With a market valuation of CA$75.8b, SU 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. Using the most recent data for SU, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
View our latest analysis for Suncor Energy
How does SU’s operating cash flow stack up against its debt?
SU’s debt levels surged from CA$16.1b to CA$18.1b over the last 12 months , which is made up of current and long term debt. With this increase in debt, SU currently has CA$2.0b remaining in cash and short-term investments for investing into the business. Additionally, SU has generated CA$8.8b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 49%, signalling that SU’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 SU’s case, it is able to generate 0.49x cash from its debt capital.
Does SU’s liquid assets cover its short-term commitments?
With current liabilities at CA$12.0b, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.9x.
Does SU face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 40%, SU’s debt level may be seen as prudent. SU is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if SU’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In SU’s case, the ratio of 19.7x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes SU and other large-cap investments thought to be safe.
Next Steps:
SU’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. However, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for SU’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Suncor Energy to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SU’s future growth? Take a look at our free research report of analyst consensus for SU’s outlook.
Valuation: What is SU 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 SU 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 editorial-team@simplywallst.com.
