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FleetCor Technologies, Inc. (NYSE:FLT), a large-cap worth US$25b, comes to mind for investors seeking a strong and reliable stock investment. 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. However, the key to extending previous success is in the health of the company’s financials. I will provide an overview of FleetCor Technologies’s financial liquidity and leverage to give you an idea of FleetCor Technologies’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into FLT here.
FLT’s Debt (And Cash Flows)
FLT has sustained its debt level by about US$4.6b over the last 12 months which accounts for long term debt. At this constant level of debt, FLT's cash and short-term investments stands at US$1.1b to keep the business going. Moreover, FLT has generated US$1.0b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 22%, signalling that FLT’s current level of operating cash is high enough to cover debt.
Does FLT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$4.6b, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$4.2b, with a current ratio of 0.91x. The current ratio is the number you get when you divide current assets by current liabilities.
Can FLT service its debt comfortably?
Since equity is smaller than total debt levels, FleetCor Technologies is considered to have high leverage. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can test if FLT’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. For FLT, the ratio of 7.67x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like FLT are considered a risk-averse investment.
With a high level of debt on its balance sheet, FLT could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for FLT to increase its 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 FLT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research FleetCor Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FLT’s future growth? Take a look at our free research report of analyst consensus for FLT’s outlook.
- Valuation: What is FLT 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 FLT 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.