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Boston Scientific Corporation (NYSE:BSX), a large-cap worth US$58b, 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. Today we will look at Boston Scientific’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into BSX here.
Does BSX Produce Much Cash Relative To Its Debt?
BSX's debt levels surged from US$5.8b to US$9.5b over the last 12 months , which accounts for long term debt. With this rise in debt, BSX currently has US$139m remaining in cash and short-term investments to keep the business going. Moreover, BSX has generated cash from operations of US$467m in the last twelve months, leading to an operating cash to total debt ratio of 4.9%, signalling that BSX’s operating cash is less than its debt.
Can BSX meet its short-term obligations with the cash in hand?
With current liabilities at US$4.5b, it appears that the company has been able to meet these obligations given the level of current assets of US$6.2b, with a current ratio of 1.39x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is BSX’s debt level acceptable?
With debt reaching 100% of equity, BSX may be thought of as relatively highly levered. 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. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can check to see whether BSX is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For BSX, the ratio of 6.2x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes BSX and other large-cap investments thought to be safe.
BSX’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. This is only a rough assessment of financial health, and I'm sure BSX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Boston Scientific to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BSX’s future growth? Take a look at our free research report of analyst consensus for BSX’s outlook.
- Valuation: What is BSX 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 BSX 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.