Yahoo Finance What Investors Should Know About International Flavors & Fragrances Inc.'s (NYSE:IFF) Financial Strength
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The size of International Flavors & Fragrances Inc. (NYSE:IFF), a US$15b large-cap, often attracts investors seeking a reliable investment in the stock market. 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. However, the health of the financials determines whether the company continues to succeed. Let’s take a look at International Flavors & Fragrances’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 IFF here.
See our latest analysis for International Flavors & Fragrances
IFF’s Debt (And Cash Flows)
IFF has built up its total debt levels in the last twelve months, from US$1.6b to US$4.6b , which includes long-term debt. With this increase in debt, IFF currently has US$635m remaining in cash and short-term investments to keep the business going. On top of this, IFF has generated cash from operations of US$438m in the last twelve months, resulting in an operating cash to total debt ratio of 9.6%, signalling that IFF’s debt is not covered by operating cash.
Can IFF pay its short-term liabilities?
Looking at IFF’s US$1.1b in current liabilities, the company has been able to meet these obligations given the level of current assets of US$2.9b, with a current ratio of 2.61x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Chemicals companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does IFF face the risk of succumbing to its debt-load?
With debt reaching 74% of equity, IFF may be thought of as relatively highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For IFF, the ratio of 5.27x suggests that interest is well-covered. Large-cap investments like IFF are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
At its current level of cash flow coverage, IFF has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for IFF's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research International Flavors & Fragrances to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IFF’s future growth? Take a look at our free research report of analyst consensus for IFF’s outlook.
Valuation: What is IFF 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 IFF 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
