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Is Spirit AeroSystems Holdings Inc’s (NYSE:SPR) Balance Sheet Strong Enough To Weather A Storm?

Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Spirit AeroSystems Holdings Inc (NYSE:SPR) a safer option. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the health of the financials determines whether the company continues to succeed. Today we will look at Spirit AeroSystems Holdings’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SPR here. See our latest analysis for Spirit AeroSystems Holdings

How does SPR’s operating cash flow stack up against its debt?

SPR’s debt levels surged from US$1.09B to US$1.15B over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$423.30M , ready to deploy into the business. Additionally, SPR has produced cash from operations of US$573.70M in the last twelve months, resulting in an operating cash to total debt ratio of 49.84%, meaning that SPR’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SPR’s case, it is able to generate 0.5x cash from its debt capital.

Can SPR meet its short-term obligations with the cash in hand?

With current liabilities at US$1.62B, the company has been able to meet these commitments with a current assets level of US$2.65B, leading to a 1.64x current account ratio. Usually, for Aerospace & Defense companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

NYSE:SPR Historical Debt Jun 11th 18
NYSE:SPR Historical Debt Jun 11th 18

Is SPR’s debt level acceptable?

With debt reaching 72.72% of equity, SPR may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. By measuring how many times SPR’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. 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. In SPR’s case, the ratio of 15.92x suggests that interest is comfortably covered. Large-cap investments like SPR are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.

Next Steps:

Although SPR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how SPR has been performing in the past. I recommend you continue to research Spirit AeroSystems Holdings to get a more holistic view of the large-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for SPR’s future growth? Take a look at our free research report of analyst consensus for SPR’s outlook.

  2. Valuation: What is SPR 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 SPR 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 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.