Yahoo Finance Is Dixons Carphone plc's (LON:DC.) Liquidity Good Enough?
Stocks with market capitalization between $2B and $10B, such as Dixons Carphone plc (LON:DC.) with a size of UK£1.6b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. 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. Don’t forget that this is a general and concentrated examination of Dixons Carphone's financial health, so you should conduct further analysis into DC. here.
Check out our latest analysis for Dixons Carphone
Does DC. Produce Much Cash Relative To Its Debt?
Over the past year, DC. has reduced its debt from UK£496m to UK£393m – this includes long-term debt. With this debt repayment, DC. currently has UK£119m remaining in cash and short-term investments , ready to be used for running the business. Moreover, DC. has produced cash from operations of UK£241m over the same time period, leading to an operating cash to total debt ratio of 61%, meaning that DC.’s current level of operating cash is high enough to cover debt.
Can DC. pay its short-term liabilities?
Looking at DC.’s UK£3.2b in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of UK£2.8b, leading to a current ratio of 0.86x. The current ratio is calculated by dividing current assets by current liabilities.
Can DC. service its debt comfortably?
With a debt-to-equity ratio of 15%, DC.'s debt level may be seen as prudent. DC. is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for DC., and the company also has the ability and headroom to increase debt if needed going forward.
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 it is still important for shareholders to understand why the company isn't increasing its cheaper cost of capital to fund future growth, especially if meeting short-term obligations could also bring about issues. Keep in mind I haven't considered other factors such as how DC. has been performing in the past. I recommend 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.
