How Financially Strong Is Science Applications International
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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Science Applications International Corporation (NYSE:SAIC), with a market cap of US$4.3b, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine SAIC’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SAIC here.
Check out our latest analysis for Science Applications International SAIC’s Debt (And Cash Flows)
Over the past year, SAIC has ramped up its debt from US$1.0b to US$2.1b , which accounts for long term debt. With this increase in debt, SAIC's cash and short-term investments stands at US$237m to keep the business going. Additionally, SAIC has produced cash from operations of US$184m during the same period of time, resulting in an operating cash to total debt ratio of 8.7%, indicating that SAIC’s debt is not covered by operating cash. Can SAIC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$897m, it seems that the business has been able to meet these commitments with a current assets level of US$1.4b, leading to a 1.6x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for IT companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments. NYSE:SAIC Historical Debt, April 30th 2019 NYSE:SAIC Historical Debt, April 30th 2019 Does SAIC face the risk of succumbing to its debt-load?
Since total debt growth have outpaced equity growth, SAIC is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if SAIC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For SAIC, the ratio of 5.77x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving SAIC ample headroom to grow its debt facilities. Next Steps:
SAIC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure SAIC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Science Applications International to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAIC’s future growth? Take a look at our free research report of analyst consensus for SAIC’s outlook. Valuation: What is SAIC 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 SAIC is currently mispriced by the market...... https://finance.yahoo.com/news/financially-strong-science-applications-international-122519823.html