Jardine Matheson Holdings Limited (SGX:J36), a large-cap worth US$44.70b, 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 adundance of stock in the public market available for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Assessing the most recent data for J36, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
How much cash does J36 generate through its operations?
J36 has built up its total debt levels in the last twelve months, from US$11.51b to US$13.68b , which comprises of short- and long-term debt. With this increase in debt, J36 currently has US$5.41b remaining in cash and short-term investments , ready to deploy into the business. Moreover, J36 has produced US$3.53b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 25.8%, signalling that J36’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In J36’s case, it is able to generate 0.26x cash from its debt capital.
Can J36 pay its short-term liabilities?
At the current liabilities level of US$15.96b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$19.20b, with a current ratio of 1.2x. For Industrials companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too capital in low return investments.
Is J36’s debt level acceptable?
With debt at 23.7% of equity, J36 may be thought of as appropriately levered. This range is considered safe as J36 is not taking on too much debt obligation, which may be constraining for future growth. We can test if J36’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For J36, the ratio of 28.88x suggests that interest is comfortably covered. Large-cap investments like J36 are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
J36 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure J36 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Jardine Matheson Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for J36’s future growth? Take a look at our free research report of analyst consensus for J36’s outlook.
- Valuation: What is J36 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 J36 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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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.