OK, coronavirus is a public health crisis that has quickly led to an economic crisis. The next concern is that the economic crisis will lead to a solvency crisis for at least some firms.
So which ones might be more vulnerable than others? Calcbench decided to do a quick analysis among the S&P 500.
First, we compared assets to liabilities. That just shows: for every dollar of liabilities that firm has, how much of a dollar does the firm also have in assets to cover that liability?
As a whole, the S&P 500 has $35.8 trillion in assets against $28.1 trillion in liabilities. That’s a ratio of 1.27, which means that for every dollar of liabilities the S&P 500 has, it also has $1.27 to cover. OK, phew.
Median numbers are even better: the ratio is 1.49.
Except reality is a collection of 500 firms within the S&P 500. So Figure 1, below, is a list of the 20 firms ranked by worst A/L ratios.
Ticker Assets Liabilities A/L Ratio YUM $5,231,000,000 $13,247,000,000 39.5% VRSN $1,854,009,000 $3,344,109,000 55.4% SBAC $9,759,941,000 $13,410,896,000 72.8% SBUX $19,219,600,000 $25,450,600,000 75.5% PM $42,875,000,000 $52,474,000,000 81.7% TDG $16,255,000,000 $19,139,000,000 84.9% AZO $9,895,913,000 $11,609,764,000 85.2% MCD $47,510,800,000 $55,721,100,000 85.3% ABBV $89,115,000,000 $97,287,000,000 91.6% WAT $2,557,055,000 $2,773,336,000 92.2% MSI $10,642,000,000 $11,325,000,000 94.0% BA $133,625,000,000 $141,925,000,000 94.2% HD $51,236,000,000 $54,352,000,000 94.3% HPQ $33,467,000,000 $34,660,000,000 96.6% SEE $5,765,200,000 $5,961,400,000 96.7% HLT $14,957,000,000 $15,429,000,000 96.9% ADSK $6,179,300,000 $6,318,400,000 97.8% MSCI $4,204,439,000 $4,281,153,000 98.2% HCA $45,058,000,000 $45,623,000,000 98.8% MAS $5,027,000,000 $5,083,000,000 98.9%
Not a surprise to see Boeing ($BA), which has suffered for more than a year under its 737 MAX crisis and would have a poor balance sheet even without the coronavirus crisis. Now its airline customers are also on the brink.
Now the Short-Term Picture
Another way to consider solvency is to ask: what is a firm’s short-term debt, coming due within 12 months; and how much cash does the company have to cover those debts?
Again, Calcbench can whip up that analysis in short order. Among the S&P, 209 firms reported short-term debt for 2019. Those firms had a total of $372.9 billion in short-term debt, and $582.2 billion in cash on hand. That’s a ratio of 1.56 — for every dollar of debt coming due, those firms had $1.56 to cover it. The median was 1.70.
Once again, phew. But you still need to look at individual firms, too. So we went back to our 20 companies from Figure 1 and checked: how many are reporting short-term debt coming due, and how much cash do they have?
We found five out of 20 that reported short-term debt. See Figure 2, below.
We see that Macy’s ($M) and Yum Brands ($YUM) are close to the knife edge, while TransDigm ($TDG) and Philip Morris ($PMI) have plenty of cash for the bills coming first.
This can all be researched with a few keystrokes on our Multi-Company database. You probably have your own ways to test the strength of a company’s balance sheet. Whatever the data you need, it’s in the Calcbench databases somewhere.
Stay well, friends.
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