Cardinal Health (CAH): Acquisition, Cash Flow and Leverage Under the Microscope

Big Picture: FY2025, a $2.4B Bet and a Material Shift in Leverage#

Cardinal Health [CAH] closed fiscal 2025 with $222.58 billion in revenue and $1.56 billion in net income, while deploying roughly $2.4 billion (reported purchase price) for Solaris Health as part of broader acquisition activity that shows up as -$5.25 billion in acquisitions cash outflows for the year. The company’s financing choices and the acquisition cadence drove net debt from a near-zero position at fiscal 2024 to $4.65 billion at fiscal 2025, a swing that materially changed leverage metrics and investor focus. These are not abstract changes: the combination of a solid earnings beat cadence, declining operating cash flow and concentrated M&A spending creates an immediate investor question — can Cardinal convert improving GAAP profits into durable cash flow while integrating a large specialty platform? (See Cardinal Health fiscal 2025 filings and investor materials for period ending 2025-06-30) Investor Relations.

Recent Financial Snapshot and What It Reveals#

Cardinal's headline figures for FY2025 show revenue moderating to $222.58B, down -1.86% versus FY2024's $226.83B, while net income rose sharply to $1.56B from $852MM the prior year (+83.33%). Gross profit expanded to $8.17B (gross margin 3.67%) and operating income rose to $2.27B (operating margin 1.02%). Those margin improvements drove GAAP earnings improvement, aided in part by operating leverage and one-off items; crucially, free cash flow fell to $1.85B from $3.25B the year prior (-43.08%), largely due to acquisition cash outflows and a decline in cash from operations to $2.40B (-36.17% YoY).

These dynamics — improving reported profitability but shrinking free cash flow in the face of large M&A — are the central tension investors must weigh. The business is generating earnings, but cash conversion is under pressure during a period of strategic deployment.

According to the company’s fiscal 2025 filings (filed 2025-08-12) the cash impact of acquisitions was -$5.25B, while net cash used in investing activities was -$5.61B and net cash provided by financing activities was $1.95B, reflecting a mix of debt financing and other financing moves Investor Relations.

Income Statement Trends (2018–2025 focus) — Calculated Trajectories and Margins#

The following table condenses four years of Cardinal’s income-statement metrics and shows the key margin inflection between FY2022 and FY2025. All percentage changes and ratios below are independently calculated from the company-provided figures.

The margin story is clear: after a loss-making operating year in FY2022, Cardinal has steadily re-expanded operating margins through FY2025, nearly tripling operating income from FY2023 to FY2025. The improvement is material but occurs against a backdrop of very large top-line scale where a few basis points of margin shift equal hundreds of millions of dollars in operating income.

Balance Sheet and Cash Flow: Acquisition-Fueled Leverage Shift#

Cardinal’s balance sheet shows the most consequential changes in FY2025: long-term debt rose to $7.98B from $4.66B in FY2024, total debt rose to $8.53B (from $5.09B), and total stockholders’ equity remained negative at -$2.78B. Cash and cash equivalents ended the year at $3.87B.

The key liquidity and leverage ratios (independently calculated) tell the integration story: the current ratio for FY2025 is 0.94x (36.37B current assets / 38.90B current liabilities), indicating sub-1.0 current coverage and continued working-capital intensity; net debt-to-EBITDA computes to ~1.50x (net debt $4.65B / EBITDA $3.11B), a moderate leverage reading for a large distributor but a marked increase from the prior fiscal year when net debt was essentially neutral.

The most important datapoint for investors is the net debt swing of roughly $4.69 billion, largely driven by the acquisition program. That swing pushes net debt/EBITDA into the low-single-digit range, an acceptable leveraging level for a cash-generative distributor, but it reduces balance-sheet optionality in the near term and makes integration execution a financial imperative.

The Solaris Health Acquisition: Strategic Rationale vs. Financials#

Cardinal’s purchase of Solaris Health (headline price reported at $2.4 billion) is the centerpiece of the company’s specialty pivot and is reflected in the FY2025 cash flow and balance-sheet moves. The acquisition aligns with management’s stated strategy to diversify away from low-margin commodity distribution into higher-margin specialty services, particularly urology, where Solaris operates.

Strategically, the rationale is threefold: diversify revenue mix, capture higher-margin recurring clinical services, and create cross-sell synergies between Cardinal’s distribution scale and Solaris’ clinical relationships. The transaction is consistent with prior specialty tuck-ins and with the company's long-term goal of lifting margins through higher-value offerings.

From a financial perspective, two observations are critical and supported by the numbers. First, Cardinal is paying with both cash and new debt — observable in the $5.25B in acquisition cash outflows and the ~$3.32B increase in long-term debt — which produced a clear trade-off between growth and capital flexibility. Second, immediate cash flow accretion is not automatic: FY2025 shows declining operating cash flow and free cash flow despite rising GAAP earnings, meaning the acquisition’s path to FCF accretion depends on rapid synergy execution and retention of Solaris’ contracted revenue.

Without Solaris’ disclosed standalone trailing revenue and EBITDA numbers, valuation judgment will rest on management’s pro forma guidance for revenue contribution, run-rate synergies and the timeline for integration. Market reaction — a modest near-term share-price dip — reflects investor appetite for clarity on those inputs.

Earnings Quality: Beats, Cash Conversion and What They Mean#

Cardinal produced a consistent string of earnings-per-share beats in fiscal 2025 quarters, with quarterly actuals above consensus in filings: recent beats include quarters where actual EPS of $2.08 vs est $2.04, $2.35 vs $2.17, and earlier beats in the same fiscal year. These beats indicate management is delivering on near-term operating performance and margin improvement.

However, quality of earnings must be judged alongside cash conversion. Operating cash flow declined -36.17% YoY, and free cash flow fell -43.08% YoY. The gap between GAAP net income improvement and cash flow deterioration is explained primarily by acquisition cash outflows (-$5.25B), changes in working capital (-$523MM), and timing effects. That divergence means reported earnings improvement is not yet fully reflected in cash generation, so the sustainability of margin gains hinges on converting those earnings into stable operating cash flow once acquisition-related outlays and integration costs abate.

Competitive and Strategic Positioning: Specialty Push in Context#

Cardinal’s move deeper into specialty care and urology — via Solaris — aims to re-shape the company’s margin and growth profile. In principle, a distributor with Cardinal’s national purchasing scale can extract procurement and logistics synergies while Solaris contributes clinical relationships and service-based revenue. Against peers, Cardinal’s advantage is balance-sheet capacity, national channel breadth and scale; the risk is cultural and execution mismatch integrating a physician-facing services company into a large distribution platform.

The market is fragmented: specialty consolidators and private equity-backed platforms are active in the urology space, and device manufacturers continue to pursue direct clinical relationships. Cardinal’s success will depend on retaining Solaris’ clinical talent, protecting client continuity during systems integration, and realizing cross-sell without eroding Solaris’ clinical credibility.

Integration Risks and What to Watch Next#

Integration is the single biggest risk to the expected ROI of the Solaris deal. Key watch items for investors are retention of Solaris’ clinical leadership, explicit pro forma disclosures from Cardinal (revenue/EBITDA contribution, run-rate synergy targets, and integration costs), and the timing of cash-flow benefits. Operational milestones that would reduce execution risk include: announced synergy realization schedules, minimal attrition among top Solaris accounts, and early cross-sell wins reported in quarterly updates.

From the financial lens, the immediate indicators to monitor are quarterly operating cash flow, free cash flow, and net-debt trends. Cardinal’s ability to return to a positive net cash position or materially reduce net debt/EBITDA within 2–3 years will be a strong signal that the acquisition is generating the intended cash returns.

What This Means For Investors#

Investors face a classic strategic trade-off: Cardinal is pursuing long-term margin improvement and revenue diversification at the cost of near-term cash generation and higher leverage. Fiscal 2025 data show a company that converted improving GAAP profitability into a weaker cash flow picture because of aggressive M&A. The near-term implications are clear: investors should watch for evidence of cash-flow normalization and transparent pro forma metrics from management.

Specific investor-relevant points:

• Cash conversion must recover. If operating cash flow and free cash flow re-accelerate toward historical run rates while acquisitions produce promised synergies, the acquisition will be easier to justify financially.

• Leverage is elevated but serviceable. Net debt-to-EBITDA of ~1.50x is moderate, but a sustained working-capital or profit shock would reduce flexibility.

• Margin gains are real but incremental. A few basis points of gross- and operating-margin improvement translate into meaningful dollars in Cardinal’s revenue base; the scale payoff is real if sustained.

• Disclosure matters. Investors require Solaris’ contribution to revenue and adjusted EBITDA, a detailed synergy schedule, and guidance on integration costs and retention packages to move from strategic hypothesis to measurable expectations.

Key Takeaways#

Cardinal Health’s FY2025 results and strategic moves produced three decisive takeaways. First, revenue compressed slightly to $222.58B (–1.86% YoY) while net income rose to $1.56B (+83.33% YoY), reflecting margin recovery. Second, acquisition spending and financing changed the balance sheet materially; net debt swung to $4.65B and long-term debt rose by $3.32B, shifting leverage into a moderate but elevated position. Third, cash generation weakened — operating cash flow and free cash flow fell by -36.17% and -43.08%, respectively — and future valuation will hinge on Cardinal’s ability to convert GAAP gains into sustainable cash flow as Solaris integrates.

Closing Synthesis#

Cardinal Health’s fiscal 2025 is a transitional year: management delivered operating improvements and consistent earnings beats, while also making a sizable strategic bet on specialty services via Solaris and other acquisitions. The numbers show improved profitability but weaker cash flow and a meaningful increase in net leverage. The investment question is execution: can Cardinal preserve Solaris’ clinical strengths, extract procurement and distribution synergies, and convert incremental EBITDA into free cash flow quickly enough to justify the capital deployed? The next 2–4 quarters of pro forma disclosures, cash-flow trends, and retention metrics will determine whether FY2025 is remembered as the year Cardinal credibly accelerated into higher-margin specialty care or as a costly strategic pivot that leaves cash conversion and capital efficiency unresolved.

For immediate reference, the company’s fiscal 2025 figures and filings are available via Cardinal Health investor relations and regulatory filings (fiscal year ended 2025-06-30) Investor Relations and the SEC public filings portal SEC Filings.

No investment recommendations or price targets are provided in this analysis.