Does an investment in Fortescue shares provide the ‘healthiest’ ASX exposure to iron ore?

Three satisfied miners with their arms crossed looking at the camera proudlyThree satisfied miners with their arms crossed looking at the camera proudly

S&P/ASX 200 Index (ASX: XJO) iron ore favourite Fortescue Metals Group Limited (ASX: FMG) is the smallest of the three major shares involved in mining the steelmaking ingredient.

It offers a market capitalisation of $58 billion. While impressive, such a valuation places it firmly in last place when it comes to the market’s three favourite iron ore miners.

Peers BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are worth a respective $224 billion and $159 billion.

But could an investment in Fortescue shares provide a ‘healthier’ exposure to iron ore? Let’s delve into its balance sheet to find out.

How does Fortescue stack up against other iron ore shares?

One measure to assess the ‘health’ of a company is to look at its debt-to-equity ratios. Doing so can evaluate how much it relies on debt to fund its operations.

But can shares in ASX 200 iron ore favourite Fortescue outperform its major competitors on this front?

As of the end of financial year 2022, Fortescue held US$6.1 billion of total debt and US$5.2 billion of cash. That leaves the company US$879 million in the red and boasting US$17.3 billion of equity.

Thus, the iron ore giant offers 35.19% debt to equity, or a debt-to-equity (D/E) ratio of 0.35.

A D/E ratio is found by dividing a company’s total debt by its total equity. Both figures can be found on its balance sheet.

BHP, meanwhile, had gross debt of US$16.4 billion and US$17.2 billion of cash at the end of financial year 2022. It also boasted US$44.9 billion of total equity. That left the largest iron ore goliath with 36.48% debt to equity, or a D/E ratio of 0.36.

However, Rio Tinto might be the most ‘healthy’ ASX 200 iron ore stock based on these metrics.

It boasted U$50.5 billion of equity as of 30 June 2022. It also held US$11.6 billion of borrowings and US$13.7 billion in cash. That left the stock with a 23% debt to equity or a D/E ratio of around 0.23.

It’s also worth pointing out that Fortescue is the only ASX 200 iron ore major with less cash than debt. Though, its net debt position is relatively light compared to many other ASX 200 stocks.

Right now, the Fortescue share price is trading at $19.01, 0.86% lower than its previous close.

For comparison, the ASX 200 is up 0.20% right now while shares in BHP and Rio Tinto have fallen 0.84% and 0.61%, respectively.  

The post Does an investment in Fortescue shares provide the ‘healthiest’ ASX exposure to iron ore? appeared first on The Motley Fool Australia.

FREE Guide for New Investors

Despite what some people may say – we believe investing in shares doesn’t have to be overwhelming or complicated…

For over a decade, we’ve been helping everyday Aussies get started on their journey.

And to help even more people cut through some of the confusion “experts” seem to want to perpetuate – we’ve created a brand-new “how to” guide.

Yes, Claim my FREE copy!
*Returns as of November 7 2022

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

Motley Fool contributor Brooke Cooper 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/1orYUVC

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s