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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Etn. Fr. Colruyt NV (EBR:COLR), with a market capitalization of €6.5b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. COLR’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into COLR here.
Does COLR Produce Much Cash Relative To Its Debt?
Over the past year, COLR has reduced its debt from €142m to €48m , which also accounts for long term debt. With this reduction in debt, COLR currently has €194m remaining in cash and short-term investments to keep the business going. Additionally, COLR has produced €565m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 1190%, indicating that COLR’s operating cash is sufficient to cover its debt.
Can COLR pay its short-term liabilities?
Looking at COLR’s €1.7b in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of €1.4b, with a current ratio of 0.83x. The current ratio is the number you get when you divide current assets by current liabilities.
Is COLR’s debt level acceptable?
COLR’s level of debt is low relative to its total equity, at 2.2%. COLR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether COLR 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 COLR's, case, the ratio of 89.89x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as COLR’s high interest coverage is seen as responsible and safe practice.
COLR’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for COLR, especially when liquidity may also be an issue. I admit this is a fairly basic analysis for COLR's financial health. Other important fundamentals need to be considered alongside. You should continue to research Etn. Fr. Colruyt to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for COLR’s future growth? Take a look at our free research report of analyst consensus for COLR’s outlook.
- Valuation: What is COLR 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 COLR 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.
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 email@example.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.