With a market capitalization of €14b, OMV Aktiengesellschaft (VIE:OMV) 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 OMV to determine is solvency and liquidity and whether the stock is a sound investment.
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How much cash does OMV generate through its operations?
OMV has built up its total debt levels in the last twelve months, from €4.8b to €5.4b – this includes long-term debt. With this rise in debt, OMV currently has €7.2b remaining in cash and short-term investments , ready to deploy into the business. Moreover, OMV has produced €4.0b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 74%, meaning that OMV’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 OMV’s case, it is able to generate 0.74x cash from its debt capital.
Can OMV pay its short-term liabilities?
With current liabilities at €10b, it seems that the business has been able to meet these obligations given the level of current assets of €13b, with a current ratio of 1.21x. Generally, for Oil and Gas companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can OMV service its debt comfortably?
With debt at 37% of equity, OMV may be thought of as appropriately levered. OMV is not taking on too much debt commitment, which may be constraining for future growth. We can test if OMV’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For OMV, the ratio of 23.68x suggests that interest is comfortably covered. Large-cap investments like OMV are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
OMV’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. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure OMV has company-specific issues impacting its capital structure decisions. I suggest you continue to research OMV to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OMV’s future growth? Take a look at our free research report of analyst consensus for OMV’s outlook.
- Valuation: What is OMV 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 OMV 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.