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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Akzo Nobel N.V. (AMS:AKZA). With a market valuation of €17b, AKZA is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for AKZA, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
AKZA’s Debt (And Cash Flows)
AKZA's debt levels have fallen from €3.7b to €2.8b over the last 12 months – this includes long-term debt. With this reduction in debt, AKZA's cash and short-term investments stands at €4.0b to keep the business going. Moreover, AKZA has produced cash from operations of €245m during the same period of time, resulting in an operating cash to total debt ratio of 8.8%, signalling that AKZA’s current level of operating cash is not high enough to cover debt.
Does AKZA’s liquid assets cover its short-term commitments?
At the current liabilities level of €3.7b, the company has been able to meet these commitments with a current assets level of €7.7b, leading to a 2.07x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Chemicals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AKZA service its debt comfortably?
AKZA’s level of debt is appropriate relative to its total equity, at 31%. AKZA is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether AKZA 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. In AKZA's case, the ratio of 7.99x suggests that interest is well-covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like AKZA are considered a risk-averse investment.
Although AKZA’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for AKZA's financial health. Other important fundamentals need to be considered alongside. You should continue to research Akzo Nobel to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AKZA’s future growth? Take a look at our free research report of analyst consensus for AKZA’s outlook.
- Valuation: What is AKZA 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 AKZA 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 firstname.lastname@example.org. 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.