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Are Intuit Inc’s (NASDAQ:INTU) Interest Costs Too High?

Bernadette Hatcher

Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Intuit Inc (NASDAQ:INTU) a safer option. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to extending previous success is in the health of the company’s financials. This article will examine Intuit’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 INTU here. Check out our latest analysis for Intuit

How much cash does INTU generate through its operations?

INTU has shrunken its total debt levels in the last twelve months, from US$1.00B to US$488.00M – this includes both the current and long-term debt. With this debt repayment, INTU currently has US$777.00M remaining in cash and short-term investments , ready to deploy into the business. Moreover, INTU has produced US$1.60B in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 327.66%, signalling that INTU’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In INTU’s case, it is able to generate 3.28x cash from its debt capital.

Can INTU meet its short-term obligations with the cash in hand?

Looking at INTU’s most recent US$1.94B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$1.42B, leading to a 0.73x current account ratio. which is under the appropriate industry ratio of 3x.

NasdaqGS:INTU Historical Debt Apr 26th 18

Can INTU service its debt comfortably?

With debt reaching 95.33% of equity, INTU may be thought of as relatively highly levered. 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 an advantage over small-caps through lower cost of capital due to cheaper financing. By measuring how many times INTU’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For INTU, the ratio of 116x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as INTU is a safe investment.

Next Steps:

Although INTU’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. This is only a rough assessment of financial health, and I’m sure INTU has company-specific issues impacting its capital structure decisions. You should continue to research Intuit to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for INTU’s future growth? Take a look at our free research report of analyst consensus for INTU’s outlook.
  2. Valuation: What is INTU 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 INTU 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.