The size of UnitedHealth Group Incorporated (NYSE:UNH), a US$249.10b large-cap, often attracts investors seeking a reliable investment in the stock market. 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. I will provide an overview of UnitedHealth Group’s financial liquidity and leverage to give you an idea of UnitedHealth Group’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into UNH here.
See our latest analysis for UnitedHealth Group
How does UNH’s operating cash flow stack up against its debt?
UNH has built up its total debt levels in the last twelve months, from US$31.94b to US$35.06b , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$21.86b for investing into the business. Moreover, UNH has generated US$17.35b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 49.48%, meaning that UNH’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In UNH’s case, it is able to generate 0.49x cash from its debt capital.
Can UNH meet its short-term obligations with the cash in hand?
At the current liabilities level of US$62.05b liabilities, the company has not been able to meet these commitments with a current assets level of US$43.79b, leading to a 0.71x current account ratio. which is under the appropriate industry ratio of 3x.
Does UNH face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 66.62%, UNH can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. For UNH, the ratio of 12.8x suggests that interest is amply covered. Large-cap investments like UNH are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
Although UNH’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. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. I admit this is a fairly basic analysis for UNH's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research UnitedHealth Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for UNH’s future growth? Take a look at our free research report of analyst consensus for UNH’s outlook.
- Valuation: What is UNH 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 UNH 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.