All You Need To Know About Alcon, Inc.'s (VTX:ALC) Financial Health
With a market capitalization of CHF29b, Alcon, Inc. (VTX:ALC) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for ALC, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Check out our latest analysis for Alcon
ALC’s Debt (And Cash Flows)
Over the past year, ALC has maintained its debt levels at around US$203m , which is mainly comprised of near term debt. At this stable level of debt, ALC's cash and short-term investments stands at US$227m , ready to be used for running the business. Moreover, ALC has generated cash from operations of US$1.1b during the same period of time, leading to an operating cash to total debt ratio of 562%, signalling that ALC’s operating cash is sufficient to cover its debt.
Can ALC pay its short-term liabilities?
At the current liabilities level of US$1.9b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.8x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Medical Equipment companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can ALC service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Alcon has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with ALC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
ALC’s high cash coverage and low 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 ALC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Alcon to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALC’s future growth? Take a look at our free research report of analyst consensus for ALC’s outlook.
Valuation: What is ALC 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 ALC 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 editorial-team@simplywallst.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.
