Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider NVR, Inc. ( NYSE:NVR ). With a market valuation of US$11b, NVR is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for NVR to determine is solvency and liquidity and whether the stock is a sound investment.
NVR’s Debt (And Cash Flows)
NVR has sustained its debt level by about US$598m over the last 12 months – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$689m to keep the business going. On top of this, NVR has generated cash from operations of US$723m in the last twelve months, leading to an operating cash to total debt ratio of 121%, meaning that NVR’s debt is appropriately covered by operating cash.
Can NVR pay its short-term liabilities?
With current liabilities at US$606m, it appears that the company has been able to meet these obligations given the level of current assets of US$2.5b, with a current ratio of 4.11x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does NVR face the risk of succumbing to its debt-load?
NVR’s level of debt is appropriate relative to its total equity, at 33%. This range is considered safe as NVR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether NVR is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For NVR, the ratio of 41.24x suggests that interest is comfortably covered. Large-cap investments like NVR are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
NVR’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how NVR has been performing in the past. I recommend you continue to research NVR to get a better picture of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for NVR’s future growth? Take a look at our free research report of analyst consensus for NVR’s outlook.
- Valuation : What is NVR 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 NVR 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 .
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.