AMETEK Inc (NYSE:AME), a large-cap worth US$17.70b, comes to mind for investors seeking a strong and reliable stock investment. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, its financial health remains the key to continued success. I will provide an overview of AMETEK’s financial liquidity and leverage to give you an idea of AMETEK’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into AME here.
How much cash does AME generate through its operations?
AME’s debt levels have fallen from US$2.40b to US$2.15b over the last 12 months , which is made up of current and long term debt. With this reduction in debt, AME currently has US$557.69m remaining in cash and short-term investments for investing into the business. On top of this, AME has generated cash from operations of US$872.39m in the last twelve months, resulting in an operating cash to total debt ratio of 40.65%, indicating that AME’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AME’s case, it is able to generate 0.41x cash from its debt capital.
Can AME meet its short-term obligations with the cash in hand?
With current liabilities at US$1.18b, the company has been able to meet these obligations given the level of current assets of US$2.02b, with a current ratio of 1.71x. Usually, for Electrical companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does AME face the risk of succumbing to its debt-load?
AME is a relatively highly levered company with a debt-to-equity of 49.47%. 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. We can check to see whether AME is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AME, the ratio of 11.34x suggests that interest is comfortably covered. Large-cap investments like AME are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Although AME’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. Since there is also no concerns around AME’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how AME has been performing in the past. You should continue to research AMETEK to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AME’s future growth? Take a look at our free research report of analyst consensus for AME’s outlook.
- Valuation: What is AME 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 AME 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.