Yahoo Movies Does Verisk Analytics Inc’s (NASDAQ:VRSK) Debt Level Pose A Problem?
The size of Verisk Analytics Inc (NASDAQ:VRSK), a US$19b large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the health of the financials determines whether the company continues to succeed. I will provide an overview of Verisk Analytics’s financial liquidity and leverage to give you an idea of Verisk Analytics’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 VRSK here.
Check out our latest analysis for Verisk Analytics
How much cash does VRSK generate through its operations?
Over the past year, VRSK has reduced its debt from US$2.9b to US$2.6b , which also accounts for long term debt. With this debt repayment, VRSK currently has US$152m remaining in cash and short-term investments for investing into the business. Moreover, VRSK has generated US$912m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 35%, meaning that VRSK’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In VRSK’s case, it is able to generate 0.35x cash from its debt capital.
Does VRSK’s liquid assets cover its short-term commitments?
Looking at VRSK’s US$1.2b in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.49x.
Is VRSK’s debt level acceptable?
With total debt exceeding equities, Verisk Analytics is considered a highly levered company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. By measuring how many times VRSK’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For VRSK, the ratio of 6.87x suggests that interest is well-covered. Large-cap investments like VRSK are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
Although VRSK’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for VRSK’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Verisk Analytics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for VRSK’s future growth? Take a look at our free research report of analyst consensus for VRSK’s outlook.
Valuation: What is VRSK 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 VRSK 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.
