Yahoo Finance What You Must Know About ResMed Inc’s (NYSE:RMD) Financial Health
With a market capitalization of US$16b, ResMed Inc (NYSE:RMD) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for RMD, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
View our latest analysis for ResMed
How does RMD’s operating cash flow stack up against its debt?
RMD has shrunken its total debt levels in the last twelve months, from US$1.0b to US$530m , which also accounts for long term debt. With this debt repayment, the current cash and short-term investment levels stands at US$230m for investing into the business. Moreover, RMD has generated US$459m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 87%, signalling that RMD’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 RMD’s case, it is able to generate 0.87x cash from its debt capital.
Can RMD pay its short-term liabilities?
With current liabilities at US$421m, the company has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 2.58x. For Medical Equipment companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does RMD face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 28%, RMD’s debt level may be seen as prudent. This range is considered safe as RMD is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether RMD is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In RMD’s case, the ratio of 49.95x suggests that interest is comfortably covered. Large-cap investments like RMD are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
RMD’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure RMD has company-specific issues impacting its capital structure decisions. I recommend you continue to research ResMed to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RMD’s future growth? Take a look at our free research report of analyst consensus for RMD’s outlook.
Valuation: What is RMD 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 RMD 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.
