Investors pursuing a solid, dependable stock investment can often be led to Mondi plc (LON:MNDI), a large-cap worth UK£10.23b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the health of the financials determines whether the company continues to succeed. Let’s take a look at Mondi’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MNDI here.
Does MNDI produce enough cash relative to debt?
MNDI’s debt levels surged from €1.57b to €2.51b over the last 12 months , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at €54.0m , ready to deploy into the business. Additionally, MNDI has generated €1.25b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 49.7%, signalling that MNDI’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 MNDI’s case, it is able to generate 0.5x cash from its debt capital.
Can MNDI pay its short-term liabilities?
At the current liabilities level of €1.63b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €2.28b, with a current ratio of 1.39x. Generally, for Forestry companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does MNDI face the risk of succumbing to its debt-load?
MNDI is a relatively highly levered company with a debt-to-equity of 71.4%. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. The sustainability of MNDI’s debt levels can be assessed by comparing the company’s interest payments to earnings. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For MNDI, the ratio of 21.51x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes MNDI and other large-cap investments thought to be safe.
MNDI’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 MNDI’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MNDI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Mondi to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MNDI’s future growth? Take a look at our free research report of analyst consensus for MNDI’s outlook.
- Valuation: What is MNDI 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 MNDI 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 email@example.com.