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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as ICON Public Limited Company (NASDAQ:ICLR), with a market capitalization of US$7.7b, rarely draw their attention from the investing community. 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. This article will examine ICLR’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ICLR here.
Does ICLR Produce Much Cash Relative To Its Debt?
ICLR has built up its total debt levels in the last twelve months, from US$349m to US$461m – this includes long-term debt. With this growth in debt, ICLR currently has US$478m remaining in cash and short-term investments to keep the business going. On top of this, ICLR has produced US$323m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 70%, signalling that ICLR’s operating cash is sufficient to cover its debt.
Can ICLR pay its short-term liabilities?
With current liabilities at US$712m, it seems that the business has been able to meet these obligations given the level of current assets of US$1.4b, with a current ratio of 2.02x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Life Sciences companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can ICLR service its debt comfortably?
ICLR’s level of debt is appropriate relative to its total equity, at 32%. This range is considered safe as ICLR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if ICLR’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ICLR, the ratio of 53.67x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ICLR’s high interest coverage is seen as responsible and safe practice.
ICLR’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how ICLR has been performing in the past. I recommend you continue to research ICON to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ICLR’s future growth? Take a look at our free research report of analyst consensus for ICLR’s outlook.
- Valuation: What is ICLR 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 ICLR 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.