Is DowDuPont Inc (NYSE:DWDP) A Financially Sound Company?
The size of DowDuPont Inc (NYSE:DWDP), a $175.80B large-cap, often attracts investors seeking a reliable investment in the stock market. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to extending previous success is in the health of the company’s financials. Today we will look at DowDuPont’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 DWDP here. View our latest analysis for DowDuPont
How much cash does DWDP generate through its operations?
Over the past year, DWDP has ramped up its debt from $17,214.0M to $21,368.0M – this includes both the current and long-term debt. With this rise in debt, DWDP’s cash and short-term investments stands at $6,532.0M for investing into the business. On top of this, DWDP has produced $5,478.0M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 25.64%, signalling that DWDP’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 DWDP’s case, it is able to generate 0.26x cash from its debt capital.
Does DWDP’s liquid assets cover its short-term commitments?
At the current liabilities level of $12,604.0M liabilities, the company has been able to meet these commitments with a current assets level of $23,659.0M, leading to a 1.88x current account ratio. For Chemicals companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can DWDP service its debt comfortably?
With debt at 35.30% of equity, DWDP may be thought of as appropriately levered. This range is considered safe as DWDP is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether DWDP is able to meet its debt obligations by looking at the net interest coverage ratio. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In DWDP’s case, the ratio of 7.82x 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 DWDP is a safe investment.
Next Steps:
DWDP’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure DWDP has company-specific issues impacting its capital structure decisions. I recommend you continue to research DowDuPont to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for DWDP’s future growth? Take a look at our free research report of analyst consensus for DWDP’s outlook.
2. Valuation: What is DWDP 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 DWDP is currently mispriced by the market.
3. 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.
