Is Sanofi’s (NYSE:SNY) Balance Sheet Strong Enough To Weather A Storm?
Investors pursuing a solid, dependable stock investment can often be led to Sanofi (NYSE:SNY), a large-cap worth US$94.36B. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the health of the financials determines whether the company continues to succeed. I will provide an overview of Sanofi’s financial liquidity and leverage to give you an idea of Sanofi’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SNY here. View our latest analysis for Sanofi
Does SNY produce enough cash relative to debt?
Over the past year, SNY has reduced its debt from €18.58B to €15.60B – this includes both the current and long-term debt. With this debt payback, SNY currently has €10.39B remaining in cash and short-term investments for investing into the business. On top of this, SNY has produced cash from operations of €7.38B in the last twelve months, leading to an operating cash to total debt ratio of 47.30%, meaning that SNY’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 SNY’s case, it is able to generate 0.47x cash from its debt capital.
Can SNY meet its short-term obligations with the cash in hand?
Looking at SNY’s most recent €15.46B liabilities, the company has been able to meet these commitments with a current assets level of €26.39B, leading to a 1.71x current account ratio. For Pharmaceuticals companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SNY face the risk of succumbing to its debt-load?
SNY’s level of debt is appropriate relative to its total equity, at 26.78%. SNY is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if SNY’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In SNY’s case, the ratio of 44.95x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes SNY and other large-cap investments thought to be safe.
Next Steps:
SNY has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for SNY’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sanofi to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SNY’s future growth? Take a look at our free research report of analyst consensus for SNY’s outlook.
Valuation: What is SNY 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 SNY 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 pass 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.
