Yahoo Finance Sprint Corporation (NYSE:S): Time For A Financial Health Check
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Sprint Corporation (NYSE:S) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, the health of the financials determines whether the company continues to succeed. Let’s take a look at Sprint’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into S here. Check out our latest analysis for Sprint
Does S produce enough cash relative to debt?
Over the past year, S has maintained its debt levels at around US$40.89B – this includes both the current and long-term debt. At this current level of debt, S currently has US$8.96B remaining in cash and short-term investments , ready to deploy into the business. Additionally, S has generated cash from operations of US$10.06B in the last twelve months, resulting in an operating cash to total debt ratio of 24.61%, meaning that S’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In S’s case, it is able to generate 0.25x cash from its debt capital.
Does S’s liquid assets cover its short-term commitments?
At the current liabilities level of US$10.80B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$14.25B, leading to a 1.32x current account ratio. Generally, for Wireless Telecom companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can S service its debt comfortably?
Sprint is a highly levered company given that total debt exceeds equity. 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. We can put the sustainability of S’s debt levels to the test by looking at how well interest payments are covered by earnings. 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 S’s case, the ratio of 1.34x suggests that interest is not strongly covered. The sheer size of Sprint means it is unlikely to default or announce bankruptcy anytime soon. However, lenders may be more reluctant to lend out more funding as S’s low interest coverage already puts the company in a risky position.
Next Steps:
S’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure S has company-specific issues impacting its capital structure decisions. I suggest you continue to research Sprint to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for S’s future growth? Take a look at our free research report of analyst consensus for S’s outlook.
Valuation: What is S 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 S 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.
