What You Must Know About Emmi AG's (VTX:EMMN) Financial Health
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Emmi AG (VTX:EMMN), with a market capitalization of CHF4.8b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. EMMN’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. Don’t forget that this is a general and concentrated examination of Emmi's financial health, so you should conduct further analysis into EMMN here.
Check out our latest analysis for Emmi
EMMN’s Debt (And Cash Flows)
EMMN's debt level has been constant at around CHF608m over the previous year – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at CHF454m to keep the business going. Additionally, EMMN has generated CHF292m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 48%, indicating that EMMN’s debt is appropriately covered by operating cash.
Can EMMN pay its short-term liabilities?
At the current liabilities level of CHF602m, the company has been able to meet these obligations given the level of current assets of CHF1.3b, with a current ratio of 2.16x. The current ratio is the number you get when you divide current assets by current liabilities. For Food 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.
Does EMMN face the risk of succumbing to its debt-load?
With debt at 37% of equity, EMMN may be thought of as appropriately levered. EMMN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if EMMN’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 EMMN, the ratio of 44.88x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving EMMN ample headroom to grow its debt facilities.
Next Steps:
EMMN’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how EMMN has been performing in the past. I suggest you continue to research Emmi to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EMMN’s future growth? Take a look at our free research report of analyst consensus for EMMN’s outlook.
Valuation: What is EMMN 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 EMMN 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 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.
