Investors pursuing a solid, dependable stock investment can often be led to IQVIA Holdings Inc (NYSE:IQV), a large-cap worth US$25.7b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to extending previous success is in the health of the company’s financials. This article will examine IQVIA Holdings’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 IQV here.
How does IQV’s operating cash flow stack up against its debt?
Over the past year, IQV has ramped up its debt from US$9.0b to US$10.7b , which comprises of short- and long-term debt. With this rise in debt, IQV’s cash and short-term investments stands at US$928m for investing into the business. Moreover, IQV has produced cash from operations of US$1.2b during the same period of time, resulting in an operating cash to total debt ratio of 11%, meaning that IQV’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In IQV’s case, it is able to generate 0.11x cash from its debt capital.
Can IQV meet its short-term obligations with the cash in hand?
At the current liabilities level of US$3.2b liabilities, the company has been able to meet these commitments with a current assets level of US$3.6b, leading to a 1.13x current account ratio. For Life Sciences companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is IQV’s debt level acceptable?
Considering IQVIA Holdings’s total debt outweighs its equity, the company is deemed highly levered. This is not unusual for large-caps since debt tends to be less expensive than equity because 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. We can test if IQV’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In IQV’s case, the ratio of 2.13x suggests that interest is not strongly covered. Although it is highly unlikely we’d see IQVIA Holdings defaulting or announcing bankruptcy tomorrow, this situation may put the company in a tough position when borrowing more money in the future to fuel its growth.
At its current level of cash flow coverage, IQV has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how IQV has been performing in the past. I suggest you continue to research IQVIA Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IQV’s future growth? Take a look at our free research report of analyst consensus for IQV’s outlook.
- Valuation: What is IQV 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 IQV 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 firstname.lastname@example.org.