Investors pursuing a solid, dependable stock investment can often be led to Deutsche Post AG (ETR:DPW), a large-cap worth €32b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to their continued success lies in its financial health. Today we will look at Deutsche Post’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. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into DPW here.
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Does DPW produce enough cash relative to debt?
Over the past year, DPW has ramped up its debt from €5.3b to €16b , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €2.4b , ready to deploy into the business. Moreover, DPW has generated cash from operations of €4.7b in the last twelve months, resulting in an operating cash to total debt ratio of 29%, indicating that DPW’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DPW’s case, it is able to generate 0.29x cash from its debt capital.
Can DPW meet its short-term obligations with the cash in hand?
At the current liabilities level of €16b, the company may not have an easy time meeting these commitments with a current assets level of €14b, leading to a current ratio of 0.9x.
Is DPW’s debt level acceptable?
Deutsche Post is a highly levered company given that total debt exceeds equity. 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. We can test if DPW’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For DPW, the ratio of 13.2x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes DPW and other large-cap investments thought to be safe.
DPW’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 low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. I admit this is a fairly basic analysis for DPW’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Deutsche Post to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DPW’s future growth? Take a look at our free research report of analyst consensus for DPW’s outlook.
- Valuation: What is DPW 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 DPW 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.