In its latest company presentations and conference calls, Mosaic has always made sure to mention that it has cash—and lots of it. With over $3 billion, it seems like Mosaic isn’t exaggerating this statement. For any company, having a lot of cash means strong liquidity, which translates to less risk. The fertilizer industry is very volatile (fertilizer prices tend to fluctuate). So, when profits are low (as is the case these days), companies with cash will most likely perform better. Cash also gives the company an opportunity to grow through investments or simply give back to its investors by raising dividends.
Does Mosaic really have a lot of cash? 16.3% of Mosaic’s market cap
Mosaic has four times the industry average percentage of cash over market cap. As of September 30, 2013, Mosaic had a quick ratio of 3.36. The quick ratio—(cash and equivalents + marketable securities + accounts and notes receivable) / current liabilities—is what investors regard as the acid-test ratio. It shows how well a company can pay off its current liabilities in a specific period. Based on the previous number, Mosaic can pay off three times its current liabilities. Mosaic’s biggest competitors—Potash Corp (POT), Agrium (AGU), CF Industries Holdings (CF), and Intrepid Potash Corp (IPI)—have quick ratios of 0.89, 0.53, 2.62, and 1.32, respectively. This positions Mosaic as one of the financially strongest companies in the industry.
Where did this all come from?
To better understand how Mosaic managed to accumulate this large amount of cash, we can use Mosaic’s statements of cash flow. As we can see from the table, there were two periods when cash increased notably: FY2008 and FY2011.
In 2008, cash increased from $420 million to $1.96 billion, or 366.67%. The reason for this increase lies within the cash flow generated by Mosaic’s operating activities. The cash increase was fostered by a 400% increase in earnings, which was triggered by strong revenues. No substantial debt was issued during this period.
In 2011, cash increased from $2.5 billion to $3.9 billion, or 56%. Once again, strong earnings were the main reason for the rise. Cash from financing activities has been negative (mainly due to stock buyback) for the past seven seven years, showing how Mosaic doesn’t depend on debt to raise cash and how the company inclusively and constantly pays dividends or buys back shares, like in 2012.