Yahoo Finance Is Mondelez International Inc’s (NASDAQ:MDLZ) Balance Sheet Strong Enough To Weather A Storm?
There are a number of reasons that attract investors towards large-cap companies such as Mondelez International Inc (NASDAQ:MDLZ), with a market cap of US$59.50b. 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. However, its financial health remains the key to continued success. Let’s take a look at Mondelez International’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MDLZ here. Check out our latest analysis for Mondelez International
How much cash does MDLZ generate through its operations?
Over the past year, MDLZ has ramped up its debt from US$17.24b to US$18.17b – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$791.00m for investing into the business. On top of this, MDLZ has produced cash from operations of US$2.59b over the same time period, leading to an operating cash to total debt ratio of 14.27%, meaning that MDLZ’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MDLZ’s case, it is able to generate 0.14x cash from its debt capital.
Does MDLZ’s liquid assets cover its short-term commitments?
With current liabilities at US$15.79b, the company has not been able to meet these commitments with a current assets level of US$7.52b, leading to a 0.48x current account ratio. which is under the appropriate industry ratio of 3x.
Is MDLZ’s debt level acceptable?
With debt reaching 73.37% of equity, MDLZ may be thought of as relatively highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. The sustainability of MDLZ’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For MDLZ, the ratio of 10.82x 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 MDLZ is a safe investment.
Next Steps:
MDLZ’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I’m sure MDLZ has company-specific issues impacting its capital structure decisions. I recommend you continue to research Mondelez International to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MDLZ’s future growth? Take a look at our free research report of analyst consensus for MDLZ’s outlook.
Valuation: What is MDLZ 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 MDLZ 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 pass 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.
