Yahoo Finance Is Coca-Cola HBC AG's (LON:CCH) Balance Sheet A Threat To Its Future?
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There are a number of reasons that attract investors towards large-cap companies such as Coca-Cola HBC AG (LON:CCH), with a market cap of UK£9.9b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Coca-Cola HBC’s financial liquidity and leverage to give you an idea of Coca-Cola HBC’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 CCH here.
Check out our latest analysis for Coca-Cola HBC
CCH’s Debt (And Cash Flows)
Over the past year, CCH has maintained its debt levels at around €1.6b – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at €993m to keep the business going. Additionally, CCH has produced cash from operations of €797m in the last twelve months, resulting in an operating cash to total debt ratio of 50%, signalling that CCH’s operating cash is sufficient to cover its debt.
Can CCH meet its short-term obligations with the cash in hand?
At the current liabilities level of €2.0b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.21x. The current ratio is the number you get when you divide current assets by current liabilities. For Beverage companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Can CCH service its debt comfortably?
With a debt-to-equity ratio of 51%, CCH can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can check to see whether CCH is able to meet its debt obligations by looking at the net interest coverage ratio. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In CCH's case, the ratio of 16.64x suggests that interest is amply 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:
Although CCH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. 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. I suggest you continue to research Coca-Cola HBC to get a more holistic view 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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
