Top Five Stocks with Strong Debt/Equity Ratios

Joel Anderson |

ALXN, ATVI, CMG, CERN, MNST, burritos, Chipotle, debt/equity, LT debt/equity, debt, assets, liabilities, current ratio, quick ratio, debtDebt is clearly something on the mind of many Americans. Since the collapse of housing market, a variety of different forms of debt have dominated the news cycles. Debt for the federal government, debt for state governments, debt for European governments, upside-down mortgages, it's clear that much of the world's economy runs on money that isn't there. As such, how much debt a company is carrying can be a very important consideration.

To be sure, high levels of debt could just mean that a company is aggressively expanding, pursuing promising business prospects while they're present and wisely investing in their future. However, debt in all forms brings some degree of risk with it, and companies that aren't carrying very much debt more often than not are standing on more stable footing than those with loads of outstanding notes. One way of judging those companies is in their debt/equity ratio. Simply put, this is the total amount of liabilities a company has divided by total shareholder equity.  It provides a fairly simple measure of how much a company owes in relation to its value.

There are other notable measure of similar data. LT debt/equity ratio focuses specifically on the long term debt being carried by a company, current ratio (current assets/current liabilities) measures a company's ability to pay short-term obligations, and quick ratio (current assets - inventories/current liabilities) measures a company's short-term liquidity. So, here are five companies that have strong numbers in all four of these measurements of debt.

Alexion Pharmaceuticals (ALXN)

Alexion is a drug company working on developing treatments for life-threatening diseases, a business that was booming in 2011 based on their share price. Alexion is up almost 90 percent since the start of 2011, and the company's balance sheet would speak to their current health as a company. Alexion has debt/equity and LT debt/equity of zero while the quick ratio is 3.5 while the current ratio is 3.87. If that's not enough, Alexion also boasts a gross margin of over 88 percent and a operating margin approaching 30 percent.

Activision Blizzard (ATVI)

The World of Warcraft might also be the World of Strong Debt to Equity-Craft. The video game maker has capitalized on the success of its flagship title to secure a strong balance sheet for the company's future. With debt/equity and LT debt/equity of naught and quick and current ratios over 3, Activision can move forward without concerns about paying off any serious debts. What's more, Activision's strong forward P/E of just under 13 and P/FCF of just over 13.5 could indicate that the share price has room to grow.

Chipotle Mexican Grill (CMG)

It shouldn't be news to anyone who has been to one that Chipotle has room to grow. Offering high quality eats for low prices, Chipotle has brought the California-style burrito to the masses not unlike its own Model T. In the last five years, Chipotle's share price has more than quintupled, reflecting the chain's rapid growth. While there are signs that this sort of constant growth has Chipotle's share price near its peak (P/E over 55 and PEG over 2.4), Chipotle also has reasons to believe that the company can keep pushing higher. Chipotle currently has debt/equity and LT debt to equity of zero, along with projected EPS growth for next year of over 25 percent.

Cerner Corporation (CERN)

Cerner specializes in healthcare information technology, a segment that could benefit immensely from the implementation of the Affordable Care Act. Cerner has grown its share price almost 30 percent since the start of 2011, and its healthy balance sheet would indicate that it could keep that growth going. With current and quick ratios of about 3.75, a debt/equity ratio of 0.06, and a LT debt/equity ratio of 0.04, Cerner can most likely invest any profits in growth. Profits that should be healthy given the gross margin of over 80 percent.

Monster Beverage Corp (MNST)

The maker of the popular Monster Energy Drink has a fairly wide portfolio of drinks that it sells, and the company's share price has doubled in value over the last year. Monster's fast growth has allowed the company to bolster its position, with debt/equity and LT debt to equity of zero. However, the quick and current ratios offer even stronger data about Monster's short-term position. The company's quick ratio is at 5.27 and the current ratio is 6.26. Like the other companies, the share price shows some signs of peaking as it's only 3 percent below its 52-week high, but the strong balance sheet might mean that Monster is ready to keep growing.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
ALXN Alexion Pharmaceuticals Inc. 120.26 -2.21 -1.80 1,111,304
ATVI Activision Blizzard Inc 44.54 0.22 0.50 4,296,680
CERN Cerner Corporation 58.46 -2.54 -4.16 3,173,475
CMG Chipotle Mexican Grill Inc. 411.94 6.84 1.69 1,034,395
MNST Monster Beverage Corporation 147.26 0.65 0.44 563,574
SHOO Steven Madden Ltd. 33.07 -0.61 -1.81 361,218


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