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Anthem, Inc. (NYSE:ANTM), a large-cap worth US$68b, comes to mind for investors seeking a strong and reliable stock investment. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, the key to extending previous success is in the health of the company’s financials. Let’s take a look at Anthem’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into ANTM here.
Does ANTM Produce Much Cash Relative To Its Debt?
ANTM's debt level has been constant at around US$21b over the previous year which accounts for long term debt. At this constant level of debt, ANTM's cash and short-term investments stands at US$24b to keep the business going. Additionally, ANTM has produced US$3.2b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 16%, meaning that ANTM’s debt is not covered by operating cash.
Can ANTM meet its short-term obligations with the cash in hand?
With current liabilities at US$23b, the company has been able to meet these commitments with a current assets level of US$37b, leading to a 1.61x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Healthcare companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ANTM service its debt comfortably?
With a debt-to-equity ratio of 69%, ANTM can be considered as an above-average leveraged company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. By measuring how many times ANTM’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ANTM's case, the ratio of 8.04x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like ANTM are considered a risk-averse investment.
ANTM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ANTM's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Anthem to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANTM’s future growth? Take a look at our free research report of analyst consensus for ANTM’s outlook.
- Valuation: What is ANTM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ANTM is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.