Yahoo Finance Is IAC/InterActiveCorp’s (NASDAQ:IAC) Balance Sheet A Threat To Its Future?
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as IAC/InterActiveCorp (NASDAQ:IAC) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the health of the financials determines whether the company continues to succeed. I will provide an overview of IAC/InterActiveCorp’s financial liquidity and leverage to give you an idea of IAC/InterActiveCorp’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 IAC here.
View our latest analysis for IAC/InterActiveCorp
Does IAC produce enough cash relative to debt?
IAC has built up its total debt levels in the last twelve months, from US$1.57b to US$2.00b , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$1.77b , ready to deploy into the business. Additionally, IAC has generated cash from operations of US$638.8m over the same time period, resulting in an operating cash to total debt ratio of 32.0%, meaning that IAC’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 IAC’s case, it is able to generate 0.32x cash from its debt capital.
Does IAC’s liquid assets cover its short-term commitments?
Looking at IAC’s most recent US$845.7m liabilities, the company has been able to meet these obligations given the level of current assets of US$2.35b, with a current ratio of 2.78x. For Interactive Media and Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does IAC face the risk of succumbing to its debt-load?
IAC is a relatively highly levered company with a debt-to-equity of 60.3%. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can check to see whether IAC 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. For IAC, the ratio of 4.12x suggests that interest is well-covered. Large-cap investments like IAC are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
IAC’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 IAC’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for IAC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research IAC/InterActiveCorp to get a more holistic view of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for IAC’s future growth? Take a look at our free research report of analyst consensus for IAC’s outlook.
Valuation: What is IAC 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 IAC 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.
