Gilead Sciences Inc (NASDAQ:GILD), a large-cap worth $114.02B, comes to mind for investors seeking a strong and reliable stock investment. 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. But, the key to extending previous success is in the health of the company’s financials. Let’s take a look at Gilead Sciences’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 GILD here. Check out our latest analysis for Gilead Sciences

How much cash does GILD generate through its operations?

Over the past year, GILD has ramped up its debt from $22,055.0M to $26,346.0M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at $11,895.0M , ready to deploy into the business. Moreover, GILD has produced cash from operations of $16,669.0M in the last twelve months, leading to an operating cash to total debt ratio of 63.27%, signalling that GILD’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In GILD’s case, it is able to generate 0.63x cash from its debt capital.

Can GILD meet its short-term obligations with the cash in hand?

Looking at GILD’s most recent $9,219.0M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.22x. Usually, for Biotechs companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Is GILD’s debt level acceptable?

Considering Gilead Sciences’s total debt outweighs its equity, the company is deemed highly levered. 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 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. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In GILD’s case, the ratio of 14.81x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like GILD are considered a risk-averse investment.

Next Steps:

GILD’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. Since there is also no concerns around GILD’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure GILD has company-specific issues impacting its capital structure decisions. You should continue to research Gilead Sciences to get a more holistic view of the large-cap by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for GILD’s future growth? Take a look at our free research report of analyst consensus for GILD’s outlook.

• 2. Valuation: What is GILD 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 GILD is currently mispriced by the market.

• 3. 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 pass 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.