Snap Inc (NYSE:SNAP): Time For A Financial Health Check
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Snap Inc (NYSE:SNAP) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to extending previous success is in the health of the company’s financials. Let’s take a look at Snap’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into SNAP here. See our latest analysis for Snap
How does SNAP’s operating cash flow stack up against its debt?
Over the past year, SNAP has ramped up its debt from US$15.14M to US$16.03M made up of predominantly near term debt. With this growth in debt, the current cash and short-term investment levels stands at US$2.04B for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of SNAP’s operating efficiency ratios such as ROA here.
Can SNAP pay its short-term liabilities?
At the current liabilities level of US$346.26M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$2.37B, with a current ratio of 6.84x. However, anything above 3x is considered high and could mean that SNAP has too much idle capital in low-earning investments.
Does SNAP face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. For Snap, investors should not worry about its debt levels because the company has very, very little on its balance sheet! This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with SNAP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
SNAP’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure SNAP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Snap to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SNAP’s future growth? Take a look at our free research report of analyst consensus for SNAP’s outlook.
Valuation: What is SNAP 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 SNAP 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.
