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With a market capitalization of kr240b, H & M Hennes & Mauritz AB (publ) (STO:HM B) 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. Using the most recent data for HM B, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does HM B Produce Much Cash Relative To Its Debt?
Over the past year, HM B has ramped up its debt from kr12b to kr21b , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at kr12b , ready to be used for running the business. Additionally, HM B has generated cash from operations of kr22b during the same period of time, resulting in an operating cash to total debt ratio of 106%, indicating that HM B’s current level of operating cash is high enough to cover debt.
Does HM B’s liquid assets cover its short-term commitments?
At the current liabilities level of kr45b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.42x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Specialty Retail companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can HM B service its debt comfortably?
HM B’s level of debt is appropriate relative to its total equity, at 34%. This range is considered safe as HM B is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
HM B’s high cash coverage and appropriate 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 HM B has been performing in the past. I suggest you continue to research H & M Hennes & Mauritz to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HM B’s future growth? Take a look at our free research report of analyst consensus for HM B’s outlook.
- Valuation: What is HM B 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 HM B 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 firstname.lastname@example.org. 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.