The size of Praxair Inc (NYSE:PX), a $46.18B 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 key to their continued success lies in its financial health. I will provide an overview of Praxair’s financial liquidity and leverage to give you an idea of Praxair’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into PX here. See our latest analysis for Praxair

How much cash does PX generate through its operations?

Over the past year, PX has maintained its debt levels at around $9,515.0M comprising of short- and long-term debt. At this current level of debt, PX currently has $524.0M remaining in cash and short-term investments , ready to deploy into the business. On top of this, PX has generated cash from operations of $2,773.0M in the last twelve months, leading to an operating cash to total debt ratio of 29.14%, indicating that PX’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PX’s case, it is able to generate 0.29x cash from its debt capital.

Does PX’s liquid assets cover its short-term commitments?

At the current liabilities level of $2,478.0M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.16x. Generally, for Chemicals companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does PX face the risk of succumbing to its debt-load?

Since equity is smaller than total debt levels, Praxair is considered to have high leverage. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have lower cost of capital due to easily obtained 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. 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 PX’s case, the ratio of 15.42x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like PX are considered a risk-averse investment.