Yahoo Finance How Financially Strong Is Sanford Limited (NZSE:SAN)?
Sanford Limited (NZSE:SAN) is a small-cap stock with a market capitalization of NZ$710.65m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SAN here.
Does SAN produce enough cash relative to debt?
Over the past year, SAN has ramped up its debt from NZ$177.54m to NZ$186.57m , which comprises of short- and long-term debt. With this growth in debt, SAN currently has NZ$5.15m remaining in cash and short-term investments , ready to deploy into the business. Moreover, SAN has generated NZ$50.28m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 26.95%, signalling that SAN’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SAN’s case, it is able to generate 0.27x cash from its debt capital.
Does SAN’s liquid assets cover its short-term commitments?
With current liabilities at NZ$123.68m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.22x. Usually, for Food companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is SAN’s debt level acceptable?
With debt at 31.66% of equity, SAN may be thought of as appropriately levered. SAN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether SAN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SAN’s, case, the ratio of 7.65x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
SAN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SAN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sanford to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAN’s future growth? Take a look at our free research report of analyst consensus for SAN’s outlook.
Valuation: What is SAN 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 SAN 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 pass 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.
