With a market capitalization of US$17b, Garmin Ltd. (NASDAQ:GRMN) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for GRMN, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Is GRMN’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For GRMN, the debt-to-equity ratio is zero, meaning that the company 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 meet its short-term obligations with the cash in hand?
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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$921m, it appears that the company has been able to meet these commitments with a current assets level of US$2.7b, leading to a 2.89x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Consumer Durables companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
GRMN has zero debt in addition to ample cash to cover its near-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I’m sure GRMN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Garmin to get a more holistic view 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.
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