There are a number of reasons that attract investors towards large-cap companies such as Apple Inc (NASDAQ:AAPL), with a market cap of USD $898.30B. One such reason is its ‘too big to fail’ aura which gives it the appearance of a strong and healthy investment. However, investors may not be aware of the metrics used to measure financial health. There are always disruptions which destabilize an existing industry, and although large-caps are hard to knock down, it is useful to understand its level of resilience. These factors make a basic understanding of a company’s financial position of utmost importance for a new investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Check out our latest analysis for Apple

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

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. In the case of AAPL, the debt-to-equity ratio is 86.30%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.

Does AAPL generate an acceptable amount of cash through operations?

A simple way to determine whether the company has put debt into good use is to look at its operating cash flow against its debt obligation. This is also a test for whether AAPL has the ability to repay its debt with cash from its business, which is less of a concern for large companies. AAPL’s recent operating cash flow was 0.55 times its debt within the past year. This is a good sign, as over half of AAPL’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.

Next Steps:

Are you a shareholder? Although AAPL’s debt level is towards the higher end of the spectrum, investors shouldn’t panic since its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since AAPL’s financial situation may differ over time, I encourage exploring market expectations for AAPL’s future growth on our free analysis platform.

Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. So, I encourage potential investors to examine AAPL’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

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.