What does Nomad Foods Limited’s (NYSE:NOMD) Balance Sheet Tell Us About Its Future?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Nomad Foods Limited (NYSE:NOMD), with a market cap of US$3.56b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at NOMD’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 top-level understanding, so I encourage you to look further into NOMD here.
Check out our latest analysis for Nomad Foods
How much cash does NOMD generate through its operations?
NOMD’s debt levels surged from €1.43b to €1.81b over the last 12 months , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at €403.7m , ready to deploy into the business. On top of this, NOMD has generated cash from operations of €164.4m in the last twelve months, leading to an operating cash to total debt ratio of 9.1%, signalling that NOMD’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In NOMD’s case, it is able to generate 0.091x cash from its debt capital.
Can NOMD pay its short-term liabilities?
Looking at NOMD’s most recent €733.4m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.36x. For Food companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is NOMD’s debt level acceptable?
With a debt-to-equity ratio of 92.2%, NOMD can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether NOMD is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In NOMD’s, case, the ratio of 6.13x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving NOMD ample headroom to grow its debt facilities.
Next Steps:
NOMD’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for NOMD’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Nomad Foods to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NOMD’s future growth? Take a look at our free research report of analyst consensus for NOMD’s outlook.
Valuation: What is NOMD 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 NOMD 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 editorial-team@simplywallst.com.