Yahoo Finance Has Dixons Carphone plc (LON:DC.) Got Enough Cash?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Dixons Carphone plc (LSE:DC.), with a market capitalization of UK£2.68B, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. DC.’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into DC. here. See our latest analysis for Dixons Carphone
How does DC.’s operating cash flow stack up against its debt?
DC. has sustained its debt level by about UK£480.00M over the last 12 months – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at UK£209.00M for investing into the business. On top of this, DC. has produced UK£364.00M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 75.83%, signalling that DC.’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DC.’s case, it is able to generate 0.76x cash from its debt capital.
Does DC.’s liquid assets cover its short-term commitments?
With current liabilities at UK£2.71B, it appears that the company has not been able to meet these commitments with a current assets level of UK£2.46B, leading to a 0.91x current account ratio. which is under the appropriate industry ratio of 3x.
Is DC.’s debt level acceptable?
With a debt-to-equity ratio of 15.95%, DC.’s debt level may be seen as prudent. This range is considered safe as DC. is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether DC. is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In DC.’s, case, the ratio of 14.43x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving DC. ample headroom to grow its debt facilities.
Next Steps:
DC.’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for DC., especially when liquidity may also be an issue. This is only a rough assessment of financial health, and I’m sure DC. has company-specific issues impacting its capital structure decisions. I suggest you continue to research Dixons Carphone to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DC.’s future growth? Take a look at our free research report of analyst consensus for DC.’s outlook.
Valuation: What is DC. 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 DC. 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.
