Is Moncler SpA’s (BIT:MONC) Liquidity Good Enough?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Moncler SpA (BIT:MONC), with a market cap of €7.4b, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. MONC’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 MONC here.
See our latest analysis for Moncler
How much cash does MONC generate through its operations?
Over the past year, MONC has reduced its debt from €113m to €82m , which includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at €325m , ready to deploy into the business. On top of this, MONC has produced cash from operations of €353m during the same period of time, resulting in an operating cash to total debt ratio of 433%, indicating that MONC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MONC’s case, it is able to generate 4.33x cash from its debt capital.
Does MONC’s liquid assets cover its short-term commitments?
Looking at MONC’s €301m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.1x. For Luxury companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does MONC face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 9.4%, MONC’s debt level is relatively low. This range is considered safe as MONC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if MONC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For MONC, the ratio of 291x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
MONC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MONC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Moncler to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MONC’s future growth? Take a look at our free research report of analyst consensus for MONC’s outlook.
Valuation: What is MONC 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 MONC 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 editorial-team@simplywallst.com.
