There are a number of reasons that attract investors towards large-cap companies such as Vail Resorts Inc (NYSE:MTN), with a market cap of US$12.04b. 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 Vail Resorts’s financial liquidity and leverage to give you an idea of Vail Resorts’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MTN here.
How much cash does MTN generate through its operations?
Over the past year, MTN has reduced its debt from US$1.21b to US$1.12b , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$181.6m , ready to deploy into the business. Additionally, MTN has produced cash from operations of US$546.0m over the same time period, leading to an operating cash to total debt ratio of 48.9%, indicating that MTN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MTN’s case, it is able to generate 0.49x cash from its debt capital.
Can MTN meet its short-term obligations with the cash in hand?
Looking at MTN’s most recent US$497.8m liabilities, the company has been able to meet these obligations given the level of current assets of US$519.7m, with a current ratio of 1.04x. Usually, for Hospitality companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can MTN service its debt comfortably?
MTN is a relatively highly levered company with a debt-to-equity of 55.7%. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can test if MTN’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For MTN, the ratio of 7.26x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as MTN is a safe investment.
Although MTN’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 MTN has been performing in the past. I suggest you continue to research Vail Resorts to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MTN’s future growth? Take a look at our free research report of analyst consensus for MTN’s outlook.
- Valuation: What is MTN 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 MTN 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 firstname.lastname@example.org.