Investment Thesis
Franklin Resources exhibits a strong balance sheet with conservative leverage (0.19x D/E) and excellent liquidity (5.30x current ratio), but is offset by significant operational concerns including negative operating cash flow of -$282.7M and weak returns on capital (ROE 4.3%, ROA 1.5%). Net income growth (11.3%) outpacing modest revenue growth (3.5%) raises earnings quality questions given the persistent negative free cash flow of -$437.2M.
Strengths
- Strong balance sheet with minimal leverage and $3.6B cash position
- Excellent liquidity metrics (5.30x current ratio and quick ratio)
- Net income growth (11.3% YoY) exceeding revenue growth (3.5% YoY)
- Solid interest coverage ratio of 15.0x indicating financial stability
- Reasonable operating margin of 13.1% for asset management sector
Risks
- Critical: Negative operating cash flow (-$282.7M) and free cash flow (-$437.2M) despite positive net income indicates earnings quality concerns
- Very low returns on equity (4.3%) and assets (1.5%) suggest inefficient capital deployment
- Divergence between net income growth and cash flow generation raises questions about accounting practices and working capital management
- Modest revenue growth (3.5% YoY) limits organic expansion in asset management business
- Negative FCF margin (-9.5%) unsustainable long-term for funding operations and potential distributions
Key Metrics to Watch
- Operating cash flow trend and reconciliation to net income
- Return on equity trajectory and capital allocation efficiency
- Assets under management (AUM) growth and fee margins
- Working capital changes explaining OCF divergence from net income
Financial Metrics
Revenue
4.6B
Net Income
523.7M
EPS (Diluted)
$0.95
Free Cash Flow
-437.2M
Total Assets
34.1B
Cash
3.6B
Profitability Ratios
Gross Margin
N/A
Operating Margin
13.1%
Net Margin
11.3%
ROE
4.3%
ROA
1.5%
FCF Margin
-9.5%
Balance Sheet & Liquidity
Current Ratio
5.30x
Quick Ratio
5.30x
Debt/Equity
0.19x
Debt/Assets
57.2%
Interest Coverage
15.00x
Long-term Debt
2.3B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T12:48:52.644944 |
Data as of: 2026-03-31 |
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