The size of Altaba Inc (NASDAQ:AABA), a US$60.52B large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, its financial health remains the key to continued success. I will provide an overview of Altaba’s financial liquidity and leverage to give you an idea of Altaba’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AABA here. See our latest analysis for Altaba
How much cash does AABA generate through its operations?
Over the past year, AABA has ramped up its debt from US$1.30B to US$1.37B , which is made up of current and long term debt. With this growth in debt, AABA currently has US$405.00K remaining in cash and short-term investments for investing into the business. Additionally, AABA has generated cash from operations of US$8.87B in the last twelve months, resulting in an operating cash to total debt ratio of 647.38%, indicating that AABA’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AABA’s case, it is able to generate 6.47x cash from its debt capital.
Can AABA pay its short-term liabilities?
Looking at AABA’s most recent US$833.00K liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$14.22M, with a current ratio of 17.06x. However, anything above 3x is considered high and could mean that AABA has too much idle capital in low-earning investments.
Can AABA service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With debt at 2.19% of equity, AABA may be thought of as having low leverage. AABA is not taking on too much debt commitment, which may be constraining for future growth. We can test if AABA’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. In AABA’s case, the ratio of 0.21x suggests that interest is not strongly covered. The sheer size of Altaba means it is unlikely to default or announce bankruptcy anytime soon. However, lenders may be more reluctant to lend out more funding as AABA’s low interest coverage already puts the company in a risky position.
AABA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure AABA has company-specific issues impacting its capital structure decisions. I suggest you continue to research Altaba to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AABA’s future growth? Take a look at our free research report of analyst consensus for AABA’s outlook.
- Valuation: What is AABA 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 AABA 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.