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Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as PerkinElmer, Inc. (NYSE:PKI) a safer option. 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 their continued success lies in its financial health. This article will examine PerkinElmer’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PKI here.
PKI’s Debt (And Cash Flows)
PKI’s debt level has been constant at around US$2.0b over the previous year – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$134m to keep the business going. Additionally, PKI has generated US$320m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 16%, indicating that PKI’s operating cash is less than its debt.
Can PKI meet its short-term obligations with the cash in hand?
Looking at PKI’s US$742m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$1.2b, with a current ratio of 1.68x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Life Sciences companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is PKI’s debt level acceptable?
With debt reaching 77% of equity, PKI may be thought of as relatively 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 PKI’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For PKI, the ratio of 5.92x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes PKI and other large-cap investments thought to be safe.
PKI’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for PKI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research PerkinElmer to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PKI’s future growth? Take a look at our free research report of analyst consensus for PKI’s outlook.
- Valuation: What is PKI 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 PKI 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.