There are a number of reasons that attract investors towards large-cap companies such as Dover Corporation (NYSE:DOV), with a market cap of US$11.51b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to extending previous success is in the health of the company’s financials. This article will examine Dover’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 DOV here. Check out our latest analysis for Dover
How does DOV’s operating cash flow stack up against its debt?
DOV has sustained its debt level by about US$3.57b over the last 12 months comprising of short- and long-term debt. At this stable level of debt, DOV’s cash and short-term investments stands at US$753.96m for investing into the business. Additionally, DOV has produced cash from operations of US$821.56m over the same time period, resulting in an operating cash to total debt ratio of 23.03%, meaning that DOV’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DOV’s case, it is able to generate 0.23x cash from its debt capital.
Does DOV’s liquid assets cover its short-term commitments?
With current liabilities at US$2.30b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.4x. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can DOV service its debt comfortably?
With debt reaching 77.79% of equity, DOV may be thought of as relatively highly levered. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can test if DOV’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In DOV’s case, the ratio of 7.5x suggests that interest is well-covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like DOV are considered a risk-averse investment.
DOV’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 DOV has company-specific issues impacting its capital structure decisions. I suggest you continue to research Dover to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DOV’s future growth? Take a look at our free research report of analyst consensus for DOV’s outlook.
- Valuation: What is DOV 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 DOV 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 pass 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.