Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Ross Stores, Inc. (NASDAQ:ROST). With a market valuation of US$36b, ROST is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for ROST to determine is solvency and liquidity and whether the stock is a sound investment.
Does ROST Produce Much Cash Relative To Its Debt?
ROST has shrunk its total debt levels in the last twelve months, from US$397m to US$312m , which includes long-term debt. With this debt repayment, ROST’s cash and short-term investments stands at US$1.4b to keep the business going. Moreover, ROST has generated cash from operations of US$2.1b over the same time period, resulting in an operating cash to total debt ratio of 661%, indicating that ROST’s current level of operating cash is high enough to cover debt.
Can ROST pay its short-term liabilities?
With current liabilities at US$2.0b, it seems that the business has been able to meet these obligations given the level of current assets of US$3.4b, with a current ratio of 1.69x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Specialty Retail 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.
Can ROST service its debt comfortably?
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. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. With debt at 9.5% of equity, ROST may be thought of as having low leverage. ROST is not taking on too much debt commitment, which may be constraining for future growth.
ROST has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ROST has been performing in the past. I suggest you continue to research Ross Stores to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ROST’s future growth? Take a look at our free research report of analyst consensus for ROST’s outlook.
- Valuation: What is ROST 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 ROST 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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