Is This Healthcare Company an Outperform?

  Google+  Twitter | + More Articles
  • Like on Facebook
  • Share on Google+
  • Share on LinkedIn

E = Equity to Debt Ratio is Close to Zero

The debt to equity ratio is a measure of a company’s financial leverage. A high ratio generally represents that a company has been aggressive in financing its growth and operations with debt. While this may improve some metrics such as earnings in the short-term, too much debt can have disastrous effects in the longer-term.

Looking at CVS’s financials for its quarter ended September 30, 2012, it has a very strong debt to equity ratio of 0.76. However, adjusting for the company’s stock repurchase program, as seen in Treasury Stock, the debt to equity ratio improves to 0.53. In comparison, Express Scripts and Walgreen have ratios of 1.75 and 0.72, respectively.

In short, debt does not appear to be a concern with CVS. The company’s interest coverage ratio, which details how easily a company can cover its interest obligations, shows that it is only spending about 7.4 percent of its operating profit on net interest expenses. CVS is also able to return value to shareholders through strong revenue and cash flow results. Revenue increased 13.3 percent in the third quarter to a record $30.2 billion, while free cash flow year-to-date totals $4.1 billion.

More Articles About:

To contact the reporter on this story: To contact the editor responsible for this story:

Yahoo Finance, Harvard Business Review, Market Watch, The Wall St. Journal, Financial Times, CNN Money, Fox Business