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Coloplast A/S (CPH:COLO B): Time For A Financial Health Check

Simply Wall St

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The size of Coloplast A/S (CPH:COLO B), a ø157b large-cap, often attracts investors seeking a reliable investment in the stock market. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the health of the financials determines whether the company continues to succeed. Today we will look at Coloplast’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into COLO B here.

View our latest analysis for Coloplast

COLO B’s Debt (And Cash Flows)

COLO B's debt levels have fallen from ø3.3b to ø2.7b over the last 12 months , which is mainly comprised of near term debt. With this reduction in debt, the current cash and short-term investment levels stands at ø620m , ready to be used for running the business. Moreover, COLO B has generated ø4.2b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 156%, signalling that COLO B’s debt is appropriately covered by operating cash.

Can COLO B meet its short-term obligations with the cash in hand?

At the current liabilities level of ø5.5b, the company has been able to meet these commitments with a current assets level of ø6.1b, leading to a 1.12x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

CPSE:COLO B Historical Debt, June 27th 2019
CPSE:COLO B Historical Debt, June 27th 2019

Is COLO B’s debt level acceptable?

With a debt-to-equity ratio of 42%, COLO B can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies.

Next Steps:

COLO 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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for COLO B's financial health. Other important fundamentals need to be considered alongside. You should continue to research Coloplast to get a better picture of the large-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for COLO B’s future growth? Take a look at our free research report of analyst consensus for COLO B’s outlook.

  2. Valuation: What is COLO 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 COLO B 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.