Yahoo Finance Does Daimler AG’s (ETR:DAI) Debt Level Pose A Problem?
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Daimler AG (XTRA:DAI) a safer option. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the key to extending previous success is in the health of the company’s financials. Today we will look at Daimler’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 DAI here. Check out our latest analysis for Daimler
How does DAI’s operating cash flow stack up against its debt?
DAI’s debt levels surged from €117.69B to €127.12B over the last 12 months , which is made up of current and long term debt. With this rise in debt, DAI currently has €18.41B remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of DAI’s operating efficiency ratios such as ROA here.
Can DAI meet its short-term obligations with the cash in hand?
At the current liabilities level of €87.11B liabilities, the company has been able to meet these commitments with a current assets level of €106.74B, leading to a 1.23x current account ratio. Usually, for Auto companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can DAI service its debt comfortably?
Daimler is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps since debt tends to be less expensive than equity because 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 DAI’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. In DAI’s case, the ratio of 72.12x 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 DAI is a safe investment.
Next Steps:
DAI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. Keep in mind I haven’t considered other factors such as how DAI has been performing in the past. You should continue to research Daimler to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DAI’s future growth? Take a look at our free research report of analyst consensus for DAI’s outlook.
Valuation: What is DAI 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 DAI 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.
