The Sonic Healthcare Ltd (ASX: SHL) share price had a turbulent time in FY22. After surging to 52-week highs of $46.71 on 30 December, the company's shares then cratered to $32.22 by 8 March.
After a relief rally, Sonic was trading sideways until June, but has since walked back towards its yearly lows, as seen below.
The forward-looking climate demands more from companies in terms of cash (liquidity and working capital) management.
With that in mind, let's take a look at Sonic's balance sheet to gain some insight into how it might weather any potential economic storm.
Sonic balance sheet breakdown
The most recent snapshot of Sonic's financial health was supplied within its set of half-yearly accounts back in February.
At that time, the company had cash and marketable securities of $735.3 million, down 18% from the previous year.
Shareholder equity totalled $7.26 billion, made up of $12.5 billion in total assets and $5.24 billion in total liabilities.
Let's take a deeper dive into how Sonic is managing cash and working capital.
Sonic should meet its short-term obligations when they fall due. Short-term liabilities are covered 1.1x by short-term assets (current ratio). That's one check for the Sonic Healthcare share price.
Meanwhile, the ratio of debt to assets is 26%, meaning debt holders have financed Sonic's asset base by that amount.
The long-term debt to total capital ratio is 28% suggesting the company has low leverage. It also has around $1 billion in long-term lease obligations.
Further insights to consider for the Sonic share price
Linking the balance sheet with some figures on the income statement gives further insights.
Sonic turned over its inventory 6.3 times in H1 FY22 and generated 75 cents for every dollar invested into its asset base.
It also generated a 12% return on assets and return on invested capital of 16% for the half as well. This is well above the company's cost of capital of 7%.
From this data, we can make a few inferences. First, Sonic can cover its short-term obligations when they come due.
It also is lowly-leveraged, with debt making up less than 30% of its capital structure. That's important in a world of rising interest rates.
It is also generating a decent return on its assets and invested capital that is above what it costs to acquire that capital.
These could be defensible characteristics in the event of an economic downturn. Remember, the balance sheet illustrates the financial health of the company, and these ratios give further insights.
In the last 12 months, the Sonic share price has slipped 12% into the red.
Sonic's asset and liability growth since 2018 is plotted on the chart below.
