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The size of Becton, Dickinson and Company (NYSE:BDX), a US$68b large-cap, often attracts investors seeking a reliable investment in the stock market. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the key to their continued success lies in its financial health. Let’s take a look at Becton Dickinson’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BDX here.
Does BDX Produce Much Cash Relative To Its Debt?
BDX's debt levels have fallen from US$23b to US$21b over the last 12 months , which also accounts for long term debt. With this debt repayment, BDX's cash and short-term investments stands at US$696m to keep the business going. On top of this, BDX has generated US$2.9b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 14%, indicating that BDX’s current level of operating cash is not high enough to cover debt.
Can BDX pay its short-term liabilities?
Looking at BDX’s US$7.1b in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$6.8b, leading to a current ratio of 0.96x. The current ratio is calculated by dividing current assets by current liabilities.
Can BDX service its debt comfortably?
With a debt-to-equity ratio of 97%, BDX can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of BDX’s debt levels can be assessed by comparing the company’s interest payments to earnings. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. In BDX's case, the ratio of 4.09x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as BDX is a safe investment.
BDX’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for BDX's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Becton Dickinson to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BDX’s future growth? Take a look at our free research report of analyst consensus for BDX’s outlook.
- Valuation: What is BDX 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 BDX 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.