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With a market capitalization of €60b, Kering SA (EPA:KER) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for KER to determine is solvency and liquidity and whether the stock is a sound investment.
Does KER produce enough cash relative to debt?
KER has shrunken its total debt levels in the last twelve months, from €5.2b to €3.9b , which also accounts for long term debt. With this debt payback, KER’s cash and short-term investments stands at €2.2b for investing into the business. On top of this, KER has generated €3.4b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 86%, signalling that KER’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 KER’s case, it is able to generate 0.86x cash from its debt capital.
Can KER meet its short-term obligations with the cash in hand?
Looking at KER’s €6.4b in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of €6.5b, leading to a 1.02x current account ratio. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does KER face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 39%, KER’s debt level may be seen as prudent. KER is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether KER is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For KER, the ratio of 50.69x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes KER and other large-cap investments thought to be safe.
KER’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for KER’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Kering to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KER’s future growth? Take a look at our free research report of analyst consensus for KER’s outlook.
- Valuation: What is KER 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 KER 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 firstname.lastname@example.org. 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.