Own Sonic Healthcare shares? Here's a look at the state of its balance sheet

Fundamentals are becoming increasingly important again in this current investment landscape

| More on:
Doctor reading a file

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Sonic is a healthcare giant that has built up a bastion of cash and assets over the years 
  • With the probability of economic risks increasing, we take a closer look at Sonic's balance sheet
  • In the last 12 months, the Sonic share price has slipped around 12%

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.

TradingView Chart

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.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

CSL share price leaping higher amid $1.9 billion funding news

ASX 200 investors are bidding up the CSL share price on Wednesday.

Read more »

Two happy scientists analysing test results.
Healthcare Shares

Mesoblast share price rockets 36% on breaking FDA news

ASX investors are sending the Mesoblast share price soaring following promising FDA news.

Read more »

a doctor in white coat and stethoscope stands in front of a building holding an electronic device in his hands.
Healthcare Shares

Guess which ASX 200 healthcare share is jumping 7% on a guidance update

This healthcare share is performing better than expected in FY 2024.

Read more »

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Earnings Results

Chemist Warehouse merger target Sigma reports 149% FY24 profit jump

This could be the last set of results from Sigma as we know it if its merger is approved.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

1 ASX healthcare stock that looks severely undervalued

I think this stock looks too cheap to miss.

Read more »

Stethoscope with a piggy bank and hundred dollar notes.
Healthcare Shares

Own Medibank shares? Here's why it's a rewarding day for you

Shareholders are getting a healthy boost today.

Read more »

Health professional looking at a laptop.
Healthcare Shares

Are CSL shares a must-buy in March?

Let's see what analysts are saying about this high-quality company.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Healthcare Shares

This ASX healthcare stock is up 72% on FDA news and 'historic moment'

Huge gains are been recorded by this stock on Tuesday. But why?

Read more »