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Is H & M Hennes & Mauritz AB (publ)'s (STO:HM B) Liquidity Good Enough?

Simply Wall St

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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider H & M Hennes & Mauritz AB (publ) (STO:HM B). With a market valuation of kr240b, HM B is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for HM B, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

View our latest analysis for H & M Hennes & Mauritz

Does HM B Produce Much Cash Relative To Its Debt?

Over the past year, HM B has ramped up its debt from kr12b to kr21b , which accounts for long term debt. With this rise in debt, HM B's cash and short-term investments stands at kr12b , ready to be used for running the business. Additionally, HM B has produced kr22b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 106%, indicating that HM B’s current level of operating cash is high enough to cover debt.

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

Looking at HM B’s kr45b in current 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 1.42x. The current ratio is the number you get when you divide current assets by current liabilities. For Specialty Retail companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

OM:HM B Historical Debt, June 26th 2019

Does HM B face the risk of succumbing to its debt-load?

With debt at 34% of equity, HM B may be thought of as appropriately levered. This range is considered safe as HM B is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

HM B’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how HM B has been performing in the past. I recommend you continue to research H & M Hennes & Mauritz to get a better picture of the stock by looking at:

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