Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Vestas Wind Systems A/S (CPH:VWS). With a market valuation of ø102b, VWS is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for VWS, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
How does VWS’s operating cash flow stack up against its debt?
VWS has sustained its debt level by about €502m over the last 12 months which accounts for long term debt. At this constant level of debt, VWS currently has €2.1b remaining in cash and short-term investments , ready to deploy into the business. Moreover, VWS has generated cash from operations of €766m in the last twelve months, resulting in an operating cash to total debt ratio of 153%, meaning that VWS’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In VWS’s case, it is able to generate 1.53x cash from its debt capital.
Can VWS meet its short-term obligations with the cash in hand?
With current liabilities at €7.2b, the company has been able to meet these obligations given the level of current assets of €8.2b, with a current ratio of 1.15x. Usually, for Electrical companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is VWS’s debt level acceptable?
VWS’s level of debt is appropriate relative to its total equity, at 17%. This range is considered safe as VWS is not taking on too much debt obligation, which may be constraining for future growth. We can test if VWS’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 VWS, the ratio of 32.39x suggests that interest is comfortably covered. Large-cap investments like VWS are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
VWS’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how VWS has been performing in the past. You should continue to research Vestas Wind Systems to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VWS’s future growth? Take a look at our free research report of analyst consensus for VWS’s outlook.
- Valuation: What is VWS 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 VWS 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.