Yahoo Finance What does Orange SA’s (EPA:ORA) Balance Sheet Tell Us About Its Future?
There are a number of reasons that attract investors towards large-cap companies such as Orange SA (EPA:ORA), with a market cap of €36.55b. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Orange’s financial liquidity and leverage to give you an idea of Orange’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into ORA here.
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How does ORA’s operating cash flow stack up against its debt?
ORA’s debt levels surged from €34.59b to €39.31b over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, ORA’s cash and short-term investments stands at €7.93b , ready to deploy into the business. Moreover, ORA has generated cash from operations of €9.60b in the last twelve months, resulting in an operating cash to total debt ratio of 24.4%, indicating that ORA’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ORA’s case, it is able to generate 0.24x cash from its debt capital.
Can ORA meet its short-term obligations with the cash in hand?
Looking at ORA’s most recent €28.25b liabilities, it seems that the business has not been able to meet these commitments with a current assets level of €21.22b, leading to a 0.75x current account ratio. which is under the appropriate industry ratio of 3x.
Can ORA service its debt comfortably?
With total debt exceeding equities, Orange is considered a highly levered company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can test if ORA’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. In ORA’s case, the ratio of 3.78x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like ORA are considered a risk-averse investment.
Next Steps:
ORA’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for ORA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Orange to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ORA’s future growth? Take a look at our free research report of analyst consensus for ORA’s outlook.
Valuation: What is ORA 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 ORA 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.
