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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Sea Limited (NYSE:SE). With a market valuation of US$15b, SE is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Assessing the most recent data for SE, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
SE’s Debt (And Cash Flows)
SE's debt level has been constant at around US$768m over the previous year which accounts for long term debt. At this stable level of debt, SE's cash and short-term investments stands at US$2.4b to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of SE’s operating efficiency ratios such as ROA here.
Can SE pay its short-term liabilities?
Looking at SE’s US$1.4b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$3.2b, leading to a 2.26x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Entertainment companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SE face the risk of succumbing to its debt-load?
SE’s level of debt is appropriate relative to its total equity, at 38%. SE is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. SE'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.
Although SE’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, 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 SE's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sea to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SE’s future growth? Take a look at our free research report of analyst consensus for SE’s outlook.
- Valuation: What is SE 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 SE 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.
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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.