How Financially Strong Is Booking Holdings Inc (NASDAQ:BKNG)?

The size of Booking Holdings Inc (NASDAQ:BKNG), a US$92.94B large-cap, often attracts investors seeking a reliable investment in the stock market. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, its financial health remains the key to continued success. Today we will look at Booking Holdings’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 BKNG here. See our latest analysis for Booking Holdings

How much cash does BKNG generate through its operations?

Over the past year, BKNG has ramped up its debt from US$6.16B to US$7.17B , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$4.30B , ready to deploy into the business. On top of this, BKNG has produced cash from operations of US$3.92B during the same period of time, resulting in an operating cash to total debt ratio of 54.74%, signalling that BKNG’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BKNG’s case, it is able to generate 0.55x cash from its debt capital.

Can BKNG pay its short-term liabilities?

Looking at BKNG’s most recent US$2.86B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$5.40B, leading to a 1.89x current account ratio. For Online Retail companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can BKNG service its debt comfortably?

BKNG is a relatively highly levered company with a debt-to-equity of 74.84%. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can test if BKNG’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. For BKNG, the ratio of 43.94x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like BKNG are considered a risk-averse investment.

Next Steps:

Although BKNG’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 BKNG's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how BKNG has been performing in the past. I recommend you continue to research Booking Holdings to get a more holistic view of the large-cap by looking at:

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