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Is Eni S.p.A.'s (BIT:ENI) Balance Sheet A Threat To Its Future?

Simply Wall St

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Eni S.p.A. (BIT:ENI), a large-cap worth €53b, comes to mind for investors seeking a strong and reliable stock investment. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to their continued success lies in its financial health. Let’s take a look at Eni’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ENI here.

Check out our latest analysis for Eni

Does ENI Produce Much Cash Relative To Its Debt?

ENI has built up its total debt levels in the last twelve months, from €24b to €32b – this includes long-term debt. With this rise in debt, ENI currently has €17b remaining in cash and short-term investments to keep the business going. On top of this, ENI has produced €14b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 43%, meaning that ENI’s debt is appropriately covered by operating cash.

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

At the current liabilities level of €32b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.31x. The current ratio is calculated by dividing current assets by current liabilities. For Oil and Gas companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

BIT:ENI Historical Debt, July 17th 2019

Is ENI’s debt level acceptable?

With a debt-to-equity ratio of 49%, ENI can be considered as an above-average leveraged company. 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.

Next Steps:

Although ENI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how ENI has been performing in the past. I recommend you continue to research Eni to get a more holistic view of the large-cap by looking at:

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