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Cardinal Health, Inc. (NYSE:CAH), a large-cap worth US$14b, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the health of the financials determines whether the company continues to succeed. I will provide an overview of Cardinal Health’s financial liquidity and leverage to give you an idea of Cardinal Health’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 CAH here.
Does CAH Produce Much Cash Relative To Its Debt?
CAH has shrunk its total debt levels in the last twelve months, from US$9.8b to US$9.0b , which also accounts for long term debt. With this debt repayment, CAH currently has US$2.2b remaining in cash and short-term investments to keep the business going. Moreover, CAH has produced cash from operations of US$2.0b over the same time period, leading to an operating cash to total debt ratio of 23%, signalling that CAH’s debt is appropriately covered by operating cash.
Does CAH’s liquid assets cover its short-term commitments?
At the current liabilities level of US$24b, the company has been able to meet these obligations given the level of current assets of US$25b, with a current ratio of 1.05x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Healthcare companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CAH’s debt level acceptable?
Cardinal Health is a highly levered company given that total debt exceeds equity. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus 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. However, since CAH is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
CAH’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how CAH has been performing in the past. I suggest you continue to research Cardinal Health to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAH’s future growth? Take a look at our free research report of analyst consensus for CAH’s outlook.
- Valuation: What is CAH 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 CAH 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 firstname.lastname@example.org. 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.