Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Thai Beverage Public Company Limited (SGX:Y92) a safer option. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the key to their continued success lies in its financial health. I will provide an overview of Thai Beverage’s financial liquidity and leverage to give you an idea of Thai Beverage’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into Y92 here. See our latest analysis for Thai Beverage
How does Y92’s operating cash flow stack up against its debt?
Y92’s debt levels have fallen from ฿46.09B to ฿40.66B over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at ฿11.18B , ready to deploy into the business. Additionally, Y92 has generated cash from operations of ฿29.57B in the last twelve months, leading to an operating cash to total debt ratio of 72.74%, meaning that Y92’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In Y92’s case, it is able to generate 0.73x cash from its debt capital.
Can Y92 meet its short-term obligations with the cash in hand?
At the current liabilities level of ฿47.67B liabilities, the company has been able to meet these obligations given the level of current assets of ฿55.92B, with a current ratio of 1.17x. Generally, for Beverage companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does Y92 face the risk of succumbing to its debt-load?
Since equity is smaller than total debt levels, Thai Beverage is considered to have high leverage. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can put the sustainability of Y92’s debt levels to the test by looking at how well interest payments are covered by earnings. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For Y92, the ratio of 24.53x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like Y92 are considered a risk-averse investment.
Y92’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. Since there is also no concerns around Y92’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for Y92’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Thai Beverage to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for Y92’s future growth? Take a look at our free research report of analyst consensus for Y92’s outlook.
- Valuation: What is Y92 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 Y92 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 pass 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.