Yahoo Finance How Financially Strong Is UDG Healthcare plc (LON:UDG)?
While small-cap stocks, such as UDG Healthcare plc (LON:UDG) with its market cap of UK£1.5b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Healthcare industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into UDG here.
Does UDG produce enough cash relative to debt?
Over the past year, UDG has reduced its debt from US$306m to US$258m , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$211m for investing into the business. On top of this, UDG has produced US$114m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 44%, signalling that UDG’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In UDG’s case, it is able to generate 0.44x cash from its debt capital.
Can UDG meet its short-term obligations with the cash in hand?
With current liabilities at US$295m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.99x. Usually, for Healthcare companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is UDG’s debt level acceptable?
With debt at 29% of equity, UDG may be thought of as appropriately levered. This range is considered safe as UDG is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether UDG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In UDG’s, case, the ratio of 13.44x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as UDG’s high interest coverage is seen as responsible and safe practice.
Next Steps:
UDG’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how UDG has been performing in the past. You should continue to research UDG Healthcare to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for UDG’s future growth? Take a look at our free research report of analyst consensus for UDG’s outlook.
Valuation: What is UDG 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 UDG 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
