With a market capitalization of €9.8b, Sartorius Stedim Biotech SA (EPA:DIM) 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 companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for DIM to determine is solvency and liquidity and whether the stock is a sound investment.
How much cash does DIM generate through its operations?
DIM’s debt levels have fallen from €200m to €183m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at €43m for investing into the business. Additionally, DIM has produced €225m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 123%, indicating that DIM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DIM’s case, it is able to generate 1.23x cash from its debt capital.
Does DIM’s liquid assets cover its short-term commitments?
With current liabilities at €411m, it appears that the company has been able to meet these commitments with a current assets level of €531m, leading to a 1.29x current account ratio. Generally, for Life Sciences companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is DIM’s debt level acceptable?
With a debt-to-equity ratio of 20%, DIM’s debt level may be seen as prudent. DIM is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether DIM is able to meet its debt obligations by looking at the net interest coverage ratio. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For DIM, the ratio of 42.41x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes DIM and other large-cap investments thought to be safe.
DIM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for DIM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sartorius Stedim Biotech to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DIM’s future growth? Take a look at our free research report of analyst consensus for DIM’s outlook.
- Valuation: What is DIM 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 DIM 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.