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LVMH Moët Hennessy - Louis Vuitton, Société Européenne (EPA:MC), a large-cap worth €176b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for MC, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does MC Produce Much Cash Relative To Its Debt?
MC's debt level has been constant at around €11b over the previous year which accounts for long term debt. At this current level of debt, the current cash and short-term investment levels stands at €5.3b , ready to be used for running the business. Moreover, MC has generated €8.5b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 77%, meaning that MC’s debt is appropriately covered by operating cash.
Does MC’s liquid assets cover its short-term commitments?
With current liabilities at €17b, it seems that the business has been able to meet these obligations given the level of current assets of €24b, with a current ratio of 1.4x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Luxury companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MC’s debt level acceptable?
With debt at 33% of equity, MC may be thought of as appropriately levered. MC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if MC’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 MC, the ratio of 104x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes MC and other large-cap investments thought to be safe.
MC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. 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 MC has company-specific issues impacting its capital structure decisions. I suggest you continue to research LVMH Moët Hennessy - Louis Vuitton Société Européenne to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MC’s future growth? Take a look at our free research report of analyst consensus for MC’s outlook.
- Valuation: What is MC 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 MC 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 email@example.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.