Yahoo Finance What You Must Know About Exelon Corporation's (NYSE:EXC) Financial Strength
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Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Exelon Corporation (NYSE:EXC) a safer option. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, its financial health remains the key to continued success. I will provide an overview of Exelon’s financial liquidity and leverage to give you an idea of Exelon’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into EXC here.
Check out our latest analysis for Exelon
EXC’s Debt (And Cash Flows)
Over the past year, EXC has maintained its debt levels at around US$37b – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$1.3b to keep the business going. On top of this, EXC has generated US$8.6b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 24%, signalling that EXC’s debt is appropriately covered by operating cash.
Can EXC meet its short-term obligations with the cash in hand?
Looking at EXC’s US$11b in current liabilities, the company has been able to meet these obligations given the level of current assets of US$13b, with a current ratio of 1.17x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Electric Utilities companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does EXC face the risk of succumbing to its debt-load?
Since equity is smaller than total debt levels, Exelon is considered to have high leverage. 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. 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. In EXC's case, the ratio of 2.94x suggests that interest is not strongly covered. Given the sheer size of Exelon, it's unlikely to default on interest payments and enter bankruptcy. However, compared to an amply profitable large-cap peer, debtors may see more risk in lending to EXC.
Next Steps:
EXC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 EXC's financial health. Other important fundamentals need to be considered alongside. You should continue to research Exelon to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EXC’s future growth? Take a look at our free research report of analyst consensus for EXC’s outlook.
Valuation: What is EXC 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 EXC 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.
