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With a market capitalization of US$12b, Varian Medical Systems, Inc. ( NYSE:VAR ) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there's plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for VAR, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Is VAR’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For VAR, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with VAR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can VAR meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Varian Medical Systems has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at VAR’s US$1.3b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$2.3b, with a current ratio of 1.71x. The current ratio is calculated by dividing current assets by current liabilities. For Medical Equipment companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
VAR has no debt as well as ample cash to cover its near-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. I admit this is a fairly basic analysis for VAR's financial health. Other important fundamentals need to be considered alongside. You should continue to research Varian Medical Systems to get a more holistic view of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for VAR’s future growth? Take a look at our free research report of analyst consensus for VAR’s outlook.
- Valuation : What is VAR 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 VAR 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 .
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.