While small-cap stocks, such as Fresh Del Monte Produce Inc. (NYSE:FDP) with its market cap of US$1.3b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that FDP is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. However, potential investors would need to take a closer look, and I recommend you dig deeper yourself into FDP here.
FDP’s Debt (And Cash Flows)
Over the past year, FDP has ramped up its debt from US$358m to US$670m , which accounts for long term debt. With this growth in debt, FDP’s cash and short-term investments stands at US$21m , ready to be used for running the business. Additionally, FDP has produced US$247m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 37%, meaning that FDP’s operating cash is sufficient to cover its debt.
Does FDP’s liquid assets cover its short-term commitments?
At the current liabilities level of US$586m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.94x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Food companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does FDP face the risk of succumbing to its debt-load?
With debt at 38% of equity, FDP may be thought of as appropriately levered. FDP is not taking on too much debt commitment, which may be constraining for future growth. FDP’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
FDP’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. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for FDP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Fresh Del Monte Produce to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FDP’s future growth? Take a look at our free research report of analyst consensus for FDP’s outlook.
- Valuation: What is FDP 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 FDP 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 email@example.com. 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.