Investors pursuing a solid, dependable stock investment can often be led to Twitter, Inc. (NYSE:TWTR), a large-cap worth US$29b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to extending previous success is in the health of the company’s financials. This article will examine Twitter’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 TWTR here.
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TWTR’s Debt (And Cash Flows)
TWTR has built up its total debt levels in the last twelve months, from US$1.8b to US$3.5b – this includes long-term debt. With this rise in debt, TWTR’s cash and short-term investments stands at US$6.5b , ready to be used for running the business. On top of this, TWTR has produced US$1.4b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 42%, indicating that TWTR’s operating cash is sufficient to cover its debt.
Can TWTR pay its short-term liabilities?
At the current liabilities level of US$1.6b, it appears that the company has been able to meet these commitments with a current assets level of US$7.3b, leading to a 4.47x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is TWTR’s debt level acceptable?
With a debt-to-equity ratio of 49%, TWTR 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. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. By measuring how many times TWTR’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TWTR’s case, the ratio of 65.52x suggests that interest is comfortably covered. Large-cap investments like TWTR are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Although TWTR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around TWTR’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for TWTR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Twitter to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TWTR’s future growth? Take a look at our free research report of analyst consensus for TWTR’s outlook.
- Valuation: What is TWTR 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 TWTR 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.
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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.