Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGPF.US) is a company that I think has an extremely positive long-term future ahead of it.
A key reason for this is the strength of its balance sheet, where debt levels are relatively low as evidenced by the debt-to-equity ratio being just 55%.
This means that for every £1 of shareholder equity, Reckitt Benckiser has just 55p of debt and means that the company is financed in a sensible fashion, thereby lowering the risk for shareholders.
Furthermore, a low debt level means that Reckitt Benckiser has the financial muscle to add to its impressive portfolio of brands. This is crucial because one of the reasons for its success has been its ability to own key brands at the right time, such as staple brands when developing economies are showing strong growth.
Therefore, should Reckitt Benckiser wish to change the tilt of its brands (perhaps to more luxury items) then it has the financial clout to do so without significantly increasing risk.
However, a strong balance sheet is not the only reason why I’m bullish on Reckitt Benckiser.
I’m also highly impressed by the company’s high rate of investment in the business. For instance, capital expenditure has consistently been above £100 million in recent years which, for a company that has been around for a long time and has sold a number of its brands for an extended period, shows that it is continually seeking further efficiencies, improved quality as well as cost savings.
Although capital expenditure reduces free cash flow, it should add to the overall value of the firm in the long run, so is good for shareholders too.
In addition, I’m encouraged by the relatively high dividend per share increases that are forecast by the market for Reckitt Benckiser. For instance, dividends per share are expected to be 5% higher in 2014 than in 2013, which could prove to be rather helpful with inflation being a continuing concern.
So, I’m optimistic about Reckitt Benckiser’s future prospects because of its financial muscle, impressive level of capital expenditure and encouraging dividend per share growth forecasts.
