Yahoo Finance Is Gilead Sciences Inc’s (NASDAQ:GILD) Balance Sheet Strong Enough To Weather A Storm?
Gilead Sciences Inc (NASDAQ:GILD), a large-cap worth US$91.0b, comes to mind for investors seeking a strong and reliable stock investment. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to their continued success lies in its financial health. This article will examine Gilead Sciences’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into GILD here.
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How much cash does GILD generate through its operations?
GILD’s debt levels surged from US$29.3b to US$31.2b over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, GILD’s cash and short-term investments stands at US$30.8b for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of GILD’s operating efficiency ratios such as ROA here.
Can GILD meet its short-term obligations with the cash in hand?
At the current liabilities level of US$10.1b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.47x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue GILD could be holding too much capital in a low-return investment environment.
Does GILD face the risk of succumbing to its debt-load?
With total debt exceeding equities, Gilead Sciences is considered a highly levered company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can assess the sustainability of GILD’s debt levels to the test by looking at how well interest payments are covered by earnings. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In GILD’s case, the ratio of 8.63x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes GILD and other large-cap investments thought to be safe.
Next Steps:
At its current level of cash flow coverage, GILD has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for GILD’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Gilead Sciences to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GILD’s future growth? Take a look at our free research report of analyst consensus for GILD’s outlook.
Valuation: What is GILD 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 GILD 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.