Yahoo Finance Is Coca-Cola HBC AG’s (LON:CCH) Balance Sheet A Threat To Its Future?
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Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Coca-Cola HBC AG (LON:CCH) a safer option. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to their continued success lies in its financial health. This article will examine Coca-Cola HBC’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into CCH here.
Check out our latest analysis for Coca-Cola HBC
How much cash does CCH generate through its operations?
CCH has sustained its debt level by about €1.6b over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at €959m , ready to deploy into the business. Additionally, CCH has produced €850m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 54%, signalling that CCH’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 CCH’s case, it is able to generate 0.54x cash from its debt capital.
Does CCH’s liquid assets cover its short-term commitments?
At the current liabilities level of €2.4b, it seems that the business has been able to meet these commitments with a current assets level of €2.8b, leading to a 1.14x current account ratio. Generally, for Beverage companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is CCH’s debt level acceptable?
With debt reaching 52% of equity, CCH may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of CCH’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For CCH, the ratio of 17.21x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as CCH is a safe investment.
Next Steps:
CCH’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around CCH’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure CCH has company-specific issues impacting its capital structure decisions. You should continue to research Coca-Cola HBC to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CCH’s future growth? Take a look at our free research report of analyst consensus for CCH’s outlook.
Valuation: What is CCH 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 CCH 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 editorial-team@simplywallst.com.
