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With a market capitalization of US$72b, Bristol-Myers Squibb Company (NYSE:BMY) 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 BMY, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does BMY Produce Much Cash Relative To Its Debt?
BMY has shrunk its total debt levels in the last twelve months, from US$7.7b to US$6.1b – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$8.8b to keep the business going. Moreover, BMY has generated cash from operations of US$6.2b over the same time period, resulting in an operating cash to total debt ratio of 102%, indicating that BMY’s current level of operating cash is high enough to cover debt.
Can BMY pay its short-term liabilities?
At the current liabilities level of US$8.8b, the company has been able to meet these obligations given the level of current assets of US$17b, with a current ratio of 1.93x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Pharmaceuticals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BMY face the risk of succumbing to its debt-load?
With debt at 39% of equity, BMY may be thought of as appropriately levered. This range is considered safe as BMY is not taking on too much debt obligation, which may be constraining for future growth.
BMY’s high cash coverage and appropriate 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. Keep in mind I haven't considered other factors such as how BMY has been performing in the past. I suggest you continue to research Bristol-Myers Squibb to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BMY’s future growth? Take a look at our free research report of analyst consensus for BMY’s outlook.
- Valuation: What is BMY 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 BMY 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.