DexCom, Inc. (NASDAQ:DXCM), a large-cap worth US$13b, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, its financial health remains the key to continued success. Today we will look at DexCom’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into DXCM here.
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How much cash does DXCM generate through its operations?
Over the past year, DXCM has maintained its debt levels at around US$346m – this includes long-term debt. At this constant level of debt, DXCM’s cash and short-term investments stands at US$669m , ready to deploy into the business. Additionally, DXCM has produced cash from operations of US$131m over the same time period, leading to an operating cash to total debt ratio of 38%, indicating that DXCM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DXCM’s case, it is able to generate 0.38x cash from its debt capital.
Can DXCM meet its short-term obligations with the cash in hand?
Looking at DXCM’s US$194m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.71x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is DXCM’s debt level acceptable?
With debt reaching 62% of equity, DXCM may be thought of as relatively highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing.
Although DXCM’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for DXCM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research DexCom to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DXCM’s future growth? Take a look at our free research report of analyst consensus for DXCM’s outlook.
- Valuation: What is DXCM 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 DXCM 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.