Yahoo Finance What You Must Know About Illumina Inc’s (NASDAQ:ILMN) Financial Strength
Illumina Inc (NASDAQ:ILMN), a large-cap worth US$41.20B, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the key to extending previous success is in the health of the company’s financials. Today we will look at Illumina’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. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into ILMN here. See our latest analysis for Illumina
How much cash does ILMN generate through its operations?
ILMN’s debt levels surged from US$1.06B to US$1.19B over the last 12 months – this includes both the current and long-term debt. With this rise in debt, ILMN currently has US$2.15B remaining in cash and short-term investments for investing into the business. Moreover, ILMN has generated cash from operations of US$875.00M in the last twelve months, resulting in an operating cash to total debt ratio of 73.41%, indicating that ILMN’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ILMN’s case, it is able to generate 0.73x cash from its debt capital.
Can ILMN pay its short-term liabilities?
At the current liabilities level of US$746.00M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.99x. However, anything about 3x may be excessive, since ILMN may be leaving too much capital in low-earning investments.
Can ILMN service its debt comfortably?
With debt reaching 40.45% of equity, ILMN may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. By measuring how many times ILMN’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. For ILMN, the ratio of 38.55x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as ILMN is a safe investment.
Next Steps:
ILMN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how ILMN has been performing in the past. You should continue to research Illumina to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ILMN’s future growth? Take a look at our free research report of analyst consensus for ILMN’s outlook.
Valuation: What is ILMN 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 ILMN 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 pass 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.
