Yahoo Finance How Financially Strong Is Kindred Healthcare Inc (NYSE:KND)?
Kindred Healthcare Inc (NYSE:KND) is a small-cap stock with a market capitalization of US$816.78m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Healthcare industry, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into KND here.
How much cash does KND generate through its operations?
KND has sustained its debt level by about US$3.30b over the last 12 months comprising of short- and long-term debt. At this stable level of debt, KND’s cash and short-term investments stands at US$182.80m , ready to deploy into the business. Moreover, KND has produced cash from operations of US$75.70m during the same period of time, resulting in an operating cash to total debt ratio of 2.29%, meaning that KND’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In KND’s case, it is able to generate 0.023x cash from its debt capital.
Can KND pay its short-term liabilities?
Looking at KND’s most recent US$926.32m liabilities, the company has been able to meet these obligations given the level of current assets of US$1.41b, with a current ratio of 1.52x. Generally, for Healthcare companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can KND service its debt comfortably?
Since total debt levels have outpaced equities, KND is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since KND is currently 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.
Next Steps:
KND’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how KND has been performing in the past. I suggest you continue to research Kindred Healthcare to get a better picture of the stock by looking at:
Valuation: What is KND 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 KND is currently mispriced by the market.
Historical Performance: What has KND’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
