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With a market capitalization of US$9.6b, Teledyne Technologies Incorporated (NYSE:TDY) 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. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for TDY, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
TDY’s Debt (And Cash Flows)
TDY's debt level has been constant at around US$1.0b over the previous year which accounts for long term debt. At this current level of debt, TDY currently has US$106m remaining in cash and short-term investments , ready to be used for running the business. On top of this, TDY has produced cash from operations of US$455m during the same period of time, resulting in an operating cash to total debt ratio of 46%, signalling that TDY’s current level of operating cash is high enough to cover debt.
Does TDY’s liquid assets cover its short-term commitments?
Looking at TDY’s US$724m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 1.54x. The current ratio is calculated by dividing current assets by current liabilities. For Aerospace & Defense companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is TDY’s debt level acceptable?
With debt at 36% of equity, TDY may be thought of as appropriately levered. TDY is not taking on too much debt commitment, which may be constraining for future growth. We can test if TDY’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In TDY's case, the ratio of 18.72x suggests that interest is comfortably covered. Large-cap investments like TDY are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
TDY’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. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TDY's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Teledyne Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TDY’s future growth? Take a look at our free research report of analyst consensus for TDY’s outlook.
- Valuation: What is TDY 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 TDY 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.