Investors pursuing a solid, dependable stock investment can often be led to FleetCor Technologies Inc (NYSE:FLT), a large-cap worth US$19.67b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to extending previous success is in the health of the company’s financials. Today we will look at FleetCor Technologies’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into FLT here. Check out our latest analysis for FleetCor Technologies
How much cash does FLT generate through its operations?
FLT has built up its total debt levels in the last twelve months, from US$3.87b to US$4.49b , which is made up of current and long term debt. With this increase in debt, FLT's cash and short-term investments stands at US$979.57m for investing into the business. Moreover, FLT has produced US$802.93m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 17.88%, indicating that FLT’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In FLT’s case, it is able to generate 0.18x cash from its debt capital.
Does FLT’s liquid assets cover its short-term commitments?
With current liabilities at US$4.31b, it seems that the business has not been able to meet these commitments with a current assets level of US$3.91b, leading to a 0.91x current account ratio. which is under the appropriate industry ratio of 3x.
Can FLT service its debt comfortably?
With total debt exceeding equities, FleetCor Technologies is considered a highly levered company. 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 FLT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For FLT, the ratio of 8.24x suggests that interest is well-covered. Large-cap investments like FLT are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
FLT’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven't considered other factors such as how FLT has been performing in the past. I recommend you continue to research FleetCor Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FLT’s future growth? Take a look at our free research report of analyst consensus for FLT’s outlook.
- Valuation: What is FLT 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 FLT 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.
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Simply Wall St has no position in any of the companies mentioned. This article 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. 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.
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