Why The Boston Beer Company, Inc. (NYSE:SAM) Is A Financially Healthy Company

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Stocks with market capitalization between $2B and $10B, such as The Boston Beer Company, Inc. (NYSE:SAM) with a size of US$2.9b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at SAM’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Boston Beer Company's financial health, so you should conduct further analysis into SAM here.

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Is SAM’s debt level acceptable?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Boston Beer 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 SAM, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Does SAM’s liquid assets cover its short-term commitments?

Given zero long-term debt on its balance sheet, Boston Beer Company has no solvency issues, which is 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. Looking at SAM’s US$132m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$221m, with a current ratio of 1.68x. Generally, for Beverage 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.

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SAM has zero-debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven't considered other factors such as how SAM has performed in the past. I recommend you continue to research Boston Beer Company to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for SAM’s future growth? Take a look at our free research report of analyst consensus for SAM’s outlook.
2. Valuation: What is SAM 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 SAM is currently mispriced by the market.
3. 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 editorial-team@simplywallst.com.

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.