We have come to learn this year that share market crashes still exist and will continue into the future. Some investors may start looking for shares that make money and have a healthy balance sheet, as opposed to pre-revenue cash burners.
Any company can go bust in a major economic downturn, but having a good balance sheet makes it less likely. Let's take a look at 4 financially fortified ASX companies.
Fortescue Metals Group Ltd (ASX: FMG)
The iron ore producer has had a bumper year as a result of the sky-high price of the commodity used to produce steel. Shareholders would be chuffed with their trailing dividend yield of 7.45% for the year.
Despite paying generous dividends, Fortescue has still grown its own cash. Taking a look at the company's balance sheet, cash and cash equivalents grew to US$4.855 billion from US$1.874 billion the previous year – a 159% increase. Meanwhile, total debt only increased to US$5.133 billion from US$3.952 billion – a 29.4% increase.
Although iron ore prices are cyclical, and Fortescue's future will be highly dependent on the supply and demand of the commodity – there is no doubt Fortescue currently has a well-capitalised balance sheet that should allow the company to batten down the hatches if we find ourselves in another recession.
Magellan Financial Group Ltd (ASX: MFG)
The Sydney based fund manager has received multiple awards over its time for its global equities and global listed infrastructure. Unsurprisingly, Magellan knows the importance of a clean balance sheet.
Magellan currently has $437.5 million of cash and cash equivalents, and not a single dollar of debt. Given the company's operating expenses for the last year were $39.23 million, it would seem it has plenty of runway in the event of another black swan.
Realistically, Magellan is using these funds for acquiring future investment opportunities – such as its recent 10% stake in the Mexican cuisine restaurant chain, Guzman y Gomez.
Pro Medicus Ltd (ASX: PME)
This healthcare technology company offers a suite of medical software products for managing medical imaging and providing advanced visualisation tools. Pro Medicus's products and services span across Australia, Europe, and North America. The Software-as-a-Service business lends itself well to predictable, long-term cash generation.
Pro Medicus's balance sheets are as clean as the sterilised hospital halls that its software is used in, with zero debt. The company's profit margins have ranged from 30% to 40%, helping it grow cash reserves from $22.796 million at the end of 2017, to $43.413 million as of June 2020.
New contracts continue to be signed for Pro Medicus's offerings, most recently the five-year contract with MedStar Health.
Codan Ltd (ASX: CDA)
The long-standing designer, supplier, and manufacturer of mining and communications equipment have stood the test of time since 1959. It's no fluke that Codan still exists today – it would partly be due to diligent cash management.
Debt-free and cashed-up – Codan is holding $92.83 million in cash and cash equivalents as of June 2020. This balance sheet gives Codan some wiggle room to continue investing in the research and development of new products. However, most importantly – the company would have just under a year's worth of cash (based on operating expenses as of June 2020) to sustain it in the event of another crash.
In addition, Codan is still growing profits to record highs, as noted in its recent guidance for the first half of FY 2021.
