Yahoo Finance Is Intertek Group plc's (LON:ITRK) Balance Sheet Strong Enough To Weather A Storm?
Investors pursuing a solid, dependable stock investment can often be led to Intertek Group plc (LON:ITRK), a large-cap worth UK£8.6b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the key to their continued success lies in its financial health. Let’s take a look at Intertek Group’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ITRK here.
Check out our latest analysis for Intertek Group
ITRK’s Debt (And Cash Flows)
Over the past year, ITRK has ramped up its debt from UK£681m to UK£985m , which includes long-term debt. With this growth in debt, ITRK's cash and short-term investments stands at UK£207m to keep the business going. On top of this, ITRK has produced UK£459m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 47%, indicating that ITRK’s debt is appropriately covered by operating cash.
Does ITRK’s liquid assets cover its short-term commitments?
With current liabilities at UK£743m, it seems that the business has been able to meet these commitments with a current assets level of UK£929m, leading to a 1.25x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Professional Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ITRK service its debt comfortably?
Considering Intertek Group’s total debt outweighs its equity, the company is deemed highly levered. 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. The sustainability of ITRK’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ITRK's case, the ratio of 18.77x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes ITRK and other large-cap investments thought to be safe.
Next Steps:
Although ITRK’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for ITRK's financial health. Other important fundamentals need to be considered alongside. You should continue to research Intertek Group to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ITRK’s future growth? Take a look at our free research report of analyst consensus for ITRK’s outlook.
Valuation: What is ITRK 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 ITRK 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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