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Chipotle Mexican Grill, Inc. (NYSE:CMG): Financial Strength Analysis

Simply Wall St

With a market capitalization of US$19b, Chipotle Mexican Grill, Inc. (NYSE:CMG) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there's plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for CMG to determine is solvency and liquidity and whether the stock is a sound investment.

View our latest analysis for Chipotle Mexican Grill

Does CMG face the risk of succumbing to its debt-load?

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. For Chipotle Mexican Grill, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with CMG, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NYSE:CMG Historical Debt, April 22nd 2019

Does CMG’s liquid assets cover its short-term commitments?

Since Chipotle Mexican Grill doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$450m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.81x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Hospitality 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.

Next Steps:

CMG has no debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I'm sure CMG has company-specific issues impacting its capital structure decisions. I recommend you continue to research Chipotle Mexican Grill to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CMG’s future growth? Take a look at our free research report of analyst consensus for CMG’s outlook.
  2. Valuation: What is CMG 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 CMG is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com. 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.