Alimentation Couche-Tard Inc (TSX:ATD.B), a large-cap worth CA$29.82B, comes to mind for investors seeking a strong and reliable stock investment. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, the key to extending previous success is in the health of the company’s financials. Let’s take a look at Alimentation Couche-Tard’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into ATD.B here. Check out our latest analysis for Alimentation Couche-Tard
How does ATD.B’s operating cash flow stack up against its debt?
Over the past year, ATD.B has ramped up its debt from US$3.06B to US$3.66B , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$645.20M for investing into the business. Additionally, ATD.B has generated cash from operations of US$1.93B in the last twelve months, leading to an operating cash to total debt ratio of 52.61%, signalling that ATD.B’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ATD.B’s case, it is able to generate 0.53x cash from its debt capital.
Can ATD.B pay its short-term liabilities?
At the current liabilities level of US$3.25B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$3.17B, leading to a 0.98x current account ratio. which is under the appropriate industry ratio of 3x.
Does ATD.B face the risk of succumbing to its debt-load?
With total debt exceeding equities, Alimentation Couche-Tard is considered a highly levered company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of ATD.B’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ATD.B’s case, the ratio of 8.58x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as ATD.B is a safe investment.
ATD.B’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven’t considered other factors such as how ATD.B has been performing in the past. I suggest you continue to research Alimentation Couche-Tard to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ATD.B’s future growth? Take a look at our free research report of analyst consensus for ATD.B’s outlook.
- Valuation: What is ATD.B 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 ATD.B 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.
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.