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Beiersdorf Aktiengesellschaft (ETR:BEI): Financial Strength Analysis

With a market capitalization of €21.1b, Beiersdorf Aktiengesellschaft (ETR:BEI) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there’s plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for BEI, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

Check out our latest analysis for Beiersdorf

Does BEI face the risk of succumbing to its debt-load?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Beiersdorf has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with BEI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

XTRA:BEI Historical Debt October 29th 18
XTRA:BEI Historical Debt October 29th 18

Can BEI meet its short-term obligations with the cash in hand?

Since Beiersdorf doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of €2.3b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €4.5b, with a current ratio of 1.95x. Generally, for Personal Products companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Next Steps:

BEI has no debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I’m sure BEI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Beiersdorf to get a better picture of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for BEI’s future growth? Take a look at our free research report of analyst consensus for BEI’s outlook.

  2. Valuation: What is BEI 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 BEI is currently mispriced by the market.

  3. 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.