EMR

Financial health: Fair7.3/10

7 strengths, 2 concerns. Weakest points: current ratio, peg ratio.

• Debt to equity: 0.40 (Strong, benchmark < 0.5) — Debt of 0.40x equity is conservative against the 0.5x benchmark. It has been broadly flat over the last 4 years.
• Net debt vs cash flow: 1.8y (Strong, benchmark < 4 years) — Net debt of $6.5B is 1.8x annual free cash flow — about 2 years of cash flow to repay.
• Current ratio: 0.94 (Concern, benchmark > 1.5) — Short-term assets cover only 0.94x short-term liabilities — below 1.0, meaning bills due this year exceed the assets on hand to pay them. It has deteriorated over the last 4 years.
• Return on equity: 13.1% (Watch, benchmark > 15%) — Earns 13.1% on shareholder equity, short of the > 15% mark.
• Gross margin: 53.4% (Strong, benchmark > 40%) — Keeps 53.4% of revenue after the direct cost of sales, comfortably past the > 40% mark.
• Net margin: 14.2% (Strong, benchmark > 10%) — Turns 14.2% of revenue into profit, comfortably past the > 10% mark.
• Free cash flow: $3.5B (Strong, benchmark positive) — Generated $3.5B of free cash flow after capital spending. It has improved over the last 4 years.
• Revenue growth: 7.1% (Watch, benchmark > 10%) — Revenue changed 7.1% year on year, short of the > 10% mark.
• Earnings growth: 18.5% (Strong, benchmark > 10%) — Earnings changed 18.5% year on year, comfortably past the > 10% mark.
• PEG ratio: 2.05 (Concern, benchmark < 1) — At 2.05, the price looks expensive relative to expected growth — Lynch treated 1.0 as fair value.
• Payout ratio: 46.4% (Strong, benchmark < 60%) — Pays out 46.4% of earnings as dividends, leaving room to keep paying.