DowDuPont Inc (NYSE:DWDP): Time For A Financial Health Check

Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as DowDuPont Inc (NYSE:DWDP) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the health of the financials determines whether the company continues to succeed. Let’s take a look at DowDuPont’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into DWDP here. View our latest analysis for DowDuPont

How does DWDP’s operating cash flow stack up against its debt?

Over the past year, DWDP has ramped up its debt from US$21.37B to US$34.07B – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$14.29B , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of DWDP’s operating efficiency ratios such as ROA here.

Does DWDP’s liquid assets cover its short-term commitments?

Looking at DWDP’s most recent US$26.13B liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.91x. Generally, for Chemicals companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does DWDP face the risk of succumbing to its debt-load?

DWDP’s level of debt is appropriate relative to its total equity, at 33.43%. DWDP is not taking on too much debt commitment, which may be constraining for future growth. We can test if DWDP’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In DWDP's case, the ratio of 6.79x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as DWDP is a safe investment.

Next Steps:

Although DWDP’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for DWDP's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research DowDuPont to get a more holistic view of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for DWDP’s future growth? Take a look at our free research report of analyst consensus for DWDP’s outlook.
• 2. Valuation: What is DWDP 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 DWDP 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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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.