AUDI AG (FRA:NSU), a large-cap worth €34b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available 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. Assessing the most recent data for NSU, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
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Does NSU Produce Much Cash Relative To Its Debt?
NSU has shrunk its total debt levels in the last twelve months, from €647m to €427m , which also accounts for long term debt. With this debt repayment, NSU's cash and short-term investments stands at €17b to keep the business going. On top of this, NSU has produced cash from operations of €7.0b in the last twelve months, resulting in an operating cash to total debt ratio of 1642%, meaning that NSU’s operating cash is sufficient to cover its debt.
Does NSU’s liquid assets cover its short-term commitments?
With current liabilities at €21b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.56x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Auto companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is NSU’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. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With a debt-to-equity ratio of 1.4%, NSU's debt level is relatively low. This range is considered safe as NSU is not taking on too much debt obligation, which may be constraining for future growth.
NSU’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 NSU's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research AUDI to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NSU’s future growth? Take a look at our free research report of analyst consensus for NSU’s outlook.
- Valuation: What is NSU 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 NSU 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.
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