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Investors pursuing a solid, dependable stock investment can often be led to Equifax Inc. (NYSE:EFX), a large-cap worth US$16b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, its financial health remains the key to continued success. This article will examine Equifax’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into EFX here.
EFX’s Debt (And Cash Flows)
Over the past year, EFX has ramped up its debt from US$2.6b to US$2.9b – this includes long-term debt. With this increase in debt, EFX currently has US$133m remaining in cash and short-term investments to keep the business going. Moreover, EFX has generated cash from operations of US$584m over the same time period, leading to an operating cash to total debt ratio of 20%, signalling that EFX’s operating cash is sufficient to cover its debt.
Can EFX meet its short-term obligations with the cash in hand?
Looking at EFX’s US$1.5b in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.57x. The current ratio is the number you get when you divide current assets by current liabilities.
Can EFX service its debt comfortably?
Considering Equifax’s total debt outweighs its equity, the company is deemed highly levered. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. Though, since EFX is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
With a high level of debt on its balance sheet, EFX could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for EFX to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. Keep in mind I haven't considered other factors such as how EFX has been performing in the past. You should continue to research Equifax to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EFX’s future growth? Take a look at our free research report of analyst consensus for EFX’s outlook.
- Valuation: What is EFX 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 EFX 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 email@example.com. 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.