There are a number of reasons that attract investors towards large-cap companies such as AstraZeneca PLC (LSE:AZN), with a market cap of £64.98B. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, its financial health remains the key to continued success. Today we will look at AstraZeneca’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into AZN here. See our latest analysis for AstraZeneca
How much cash does AZN generate through its operations?
Over the past year, AZN has ramped up its debt from $15,063.0M to $16,943.0M , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at $5,921.0M for investing into the business. On top of this, AZN has generated cash from operations of $4,145.0M during the same period of time, resulting in an operating cash to total debt ratio of 24.46%, signalling that AZN’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 AZN’s case, it is able to generate 0.24x cash from its debt capital.
Can AZN pay its short-term liabilities?
With current liabilities at $15,256.0M, it appears that the company has not been able to meet these commitments with a current assets level of $13,262.0M, leading to a 0.87x current account ratio. which is under the appropriate industry ratio of 3x.
Can AZN service its debt comfortably?
AstraZeneca is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of AZN’s debt levels can be assessed by comparing the company’s interest payments to earnings. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. In AZN's case, the ratio of 70.65x suggests that interest is amply covered. Large-cap investments like AZN are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
AZN’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven't considered other factors such as how AZN has been performing in the past. I recommend you continue to research AstraZeneca to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for AZN’s future growth? Take a look at our free research report of analyst consensus for AZN’s outlook.
2. Valuation: What is AZN 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 AZN 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.
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