The size of IQVIA Holdings Inc (NYSE:IQV), a US$20.37b 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. However, 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. Check out our latest analysis for IQVIA Holdings
How much cash does IQV generate through its operations?
IQV has built up its total debt levels in the last twelve months, from US$7.20b to US$0 – 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$1.01b , ready to deploy into the business. On top of this, IQV has produced US$970.00m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 9.49%, indicating that IQV’s operating cash is not sufficient to cover its 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 0.095x cash from its debt capital.
Does IQV’s liquid assets cover its short-term commitments?
With current liabilities at US$2.90b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.19x. Usually, for Life Sciences companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is IQV’s debt level acceptable?
Considering IQVIA Holdings’s total debt outweighs its equity, the company is deemed highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can test if IQV’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For IQV, the ratio of 2.25x 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. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for IQV’s financial health. Other important fundamentals need to be considered alongside. 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.