Yahoo Finance What You Must Know About Salvatore Ferragamo SpA’s (BIT:SFER) Financial Health
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Salvatore Ferragamo SpA (BIT:SFER), with a market cap of €3.5b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine SFER’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 top-level understanding, so I encourage you to look further into SFER here.
Check out our latest analysis for Salvatore Ferragamo
How much cash does SFER generate through its operations?
Over the past year, SFER has reduced its debt from €98m to €48m – this includes long-term debt. With this debt repayment, SFER’s cash and short-term investments stands at €187m for investing into the business. Additionally, SFER has produced cash from operations of €189m during the same period of time, leading to an operating cash to total debt ratio of 397%, indicating that SFER’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SFER’s case, it is able to generate 3.97x cash from its debt capital.
Does SFER’s liquid assets cover its short-term commitments?
Looking at SFER’s €263m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €718m, with a current ratio of 2.73x. For Luxury 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.
Is SFER’s debt level acceptable?
With a debt-to-equity ratio of 6.3%, SFER’s debt level is relatively low. This range is considered safe as SFER is not taking on too much debt obligation, which may be constraining for future growth. We can test if SFER’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For SFER, the ratio of 115x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
SFER has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SFER’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Salvatore Ferragamo to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SFER’s future growth? Take a look at our free research report of analyst consensus for SFER’s outlook.
Valuation: What is SFER 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 SFER 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.
