Celanese Corporation (NYSE:CE): Time For A Financial Health Check
The size of Celanese Corporation (NYSE:CE), a US$15.47B large-cap, often attracts investors seeking a reliable investment in the stock market. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Celanese’s financial liquidity and leverage to give you an idea of Celanese’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into CE here. See our latest analysis for Celanese
How does CE’s operating cash flow stack up against its debt?
CE has built up its total debt levels in the last twelve months, from US$3.01B to US$3.64B , which is made up of current and long term debt. With this growth in debt, CE currently has US$589.00M remaining in cash and short-term investments for investing into the business. Additionally, CE has generated cash from operations of US$803.00M during the same period of time, resulting in an operating cash to total debt ratio of 22.05%, meaning that CE’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CE’s case, it is able to generate 0.22x cash from its debt capital.
Does CE’s liquid assets cover its short-term commitments?
With current liabilities at US$1.56B, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.79x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can CE service its debt comfortably?
Considering Celanese’s total debt outweighs its equity, the company is deemed highly levered. 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. By measuring how many times CE’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For CE, the ratio of 99.27x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like CE are considered a risk-averse investment.
Next Steps:
At its current level of cash flow coverage, CE has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Celanese to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CE’s future growth? Take a look at our free research report of analyst consensus for CE’s outlook.
Valuation: What is CE 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 CE 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.
