Is Monster Beverage Corporation (NASDAQ:MNST) As Strong As Its Balance Sheet Indicates?
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Monster Beverage Corporation (NASDAQ:MNST), a large-cap worth US$32b, 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. Assessing the most recent data for MNST, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
See our latest analysis for Monster Beverage
Can MNST service its debt comfortably?
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%. For MNST, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with MNST, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can MNST meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Monster Beverage has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$601m, it appears that the company has been able to meet these commitments with a current assets level of US$1.8b, leading to a 3x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Next Steps:
MNST has no debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. I admit this is a fairly basic analysis for MNST's financial health. Other important fundamentals need to be considered alongside. You should continue to research Monster Beverage to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MNST’s future growth? Take a look at our free research report of analyst consensus for MNST’s outlook.
Valuation: What is MNST 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 MNST 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 editorial-team@simplywallst.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.
