Post 3 of the 7 post series for the Nvidia (NVDA) Financial Research Analysis we will be looking at the Balance Sheet. In summary, Nvidia’s balance sheet looks outstanding and here are my top three key items:

#1. No short or long term debt on the balance sheet (Positive)
#2. Increasing cash position year over year (Positive)
#3. Increases in treasury stock reduced # of common shares outstanding (Positive)

#1. Over the last 5 years, there was a small amount of debt back in 2004 which has been eliminated since then. This results in the debt to equity % metric to be 0%, anything under 100% is favorable from a value standpoint. As a note of caution while I foot through the 10k, there appears to be some operating leases that the firm highlights as contractual obligations. Out of the total $941 million contractual obligations in the 2008 annual report, $188.6 million represent operating leases, a form of debt.

#2. In the below balance sheet exhibits, you will notice that on an annual and quarterly basis, the cash position has increase over the prior period in almost every time period. This is a very positive sign as the company starts to stockpile cash, coming in around $3.25 cash per share outstanding, a nice margin of safety as the stock trades in $23 per share range. This cash balance helps to improve current ratio and quick ratio metrics, both above 2.5x. As I continue to monitor this stock, the firm should be careful with how much cash they decide to sit on. Sometimes a large cash balance is seen by shareholders as an inefficient use of capital. Currently NVDA does not pay a dividend, so one has to assume the growing cash balance will be used in one form or another (i.e. M&A activity, dividends, etc)

#3. Similar to the cash balance, the treasury stock has increased in every period when compared to the previous one. With no debt to pay off, NVDA is basically reducing the outstanding equity. This is a favorable sign on multiple fronts. First, the firm believes that the stock is undervalued in the marketplace and utilizing its cash to buy shares back. Secondly, by reducing the # of common shares outstanding, the earnings per share metric will be naturally improved by reducing the denominator.

Here are the Balance sheet metrics that I pulled together. Please note, all of this info can be found on many of the online financial websites, I prefer Morningstar.

Author Disclosure: At the time of this posting, I do not have a position in NVDA. Please also refer to my website disclaimer as I am not a professional financial advisor.