Yahoo Finance Does Aena SME SA’s (BME:AENA) Debt Level Pose A Problem?
The size of Aena SME SA (BME:AENA), a €23.69b large-cap, often attracts investors seeking a reliable investment in the stock market. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, its financial health remains the key to continued success. Today we will look at Aena S.M.E’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AENA here. View out our latest analysis for Aena S.M.E
How much cash does AENA generate through its operations?
AENA has shrunken its total debt levels in the last twelve months, from €8.94b to €8.11b , which is made up of current and long term debt. With this debt payback, AENA’s cash and short-term investments stands at €854.98m for investing into the business. Moreover, AENA has produced €2.01b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 24.86%, signalling that AENA’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 AENA’s case, it is able to generate 0.25x cash from its debt capital.
Does AENA’s liquid assets cover its short-term commitments?
Looking at AENA’s most recent €1.48b liabilities, it appears that the company has not been able to meet these commitments with a current assets level of €1.21b, leading to a 0.82x current account ratio. which is under the appropriate industry ratio of 3x.
Does AENA face the risk of succumbing to its debt-load?
Since equity is smaller than total debt levels, Aena S.M.E is considered to have high leverage. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. By measuring how many times AENA’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In AENA’s case, the ratio of 12.61x 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 AENA is a safe investment.
Next Steps:
AENA’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. This is only a rough assessment of financial health, and I’m sure AENA has company-specific issues impacting its capital structure decisions. You should continue to research Aena S.M.E to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AENA’s future growth? Take a look at our free research report of analyst consensus for AENA’s outlook.
Valuation: What is AENA 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 AENA 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.
