What does Science Applications International Corporation’s (NYSE:SAIC) Balance Sheet Tell Us About Its Future?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Science Applications International Corporation (NYSE:SAIC) with a market-capitalization of US$3.73B, rarely draw their attention. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at SAIC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SAIC here. See our latest analysis for Science Applications International
How does SAIC’s operating cash flow stack up against its debt?
Over the past year, SAIC has maintained its debt levels at around US$1.02B made up of current and long term debt. At this constant level of debt, SAIC’s cash and short-term investments stands at US$144.00M , ready to deploy into the business. Additionally, SAIC has produced US$217.00M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 21.19%, signalling that SAIC’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 SAIC’s case, it is able to generate 0.21x cash from its debt capital.
Does SAIC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$695.00M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.37x. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is SAIC’s debt level acceptable?
SAIC is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether SAIC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SAIC’s, case, the ratio of 6.11x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as SAIC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
SAIC’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 an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how SAIC has been performing in the past. You should continue to research Science Applications International to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAIC’s future growth? Take a look at our free research report of analyst consensus for SAIC’s outlook.
Valuation: What is SAIC 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 SAIC 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.
