Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider Garmin Ltd (NASDAQ:GRMN). With a market valuation of US$12b, GRMN is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for GRMN to determine is solvency and liquidity and whether the stock is a sound investment.
Can GRMN 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. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Garmin has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with GRMN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can GRMN pay its short-term liabilities?
Since Garmin doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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$854m, it seems that the business has been able to meet these obligations given the level of current assets of US$2.4b, with a current ratio of 2.81x. Generally, for Consumer Durables companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
GRMN has zero debt as well as ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and shareholders. Keep in mind I haven’t considered other factors such as how GRMN has performed in the past. I recommend you continue to research Garmin to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GRMN’s future growth? Take a look at our free research report of analyst consensus for GRMN’s outlook.
- Valuation: What is GRMN 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 GRMN 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.