Yahoo Finance What does L'Air Liquide S.A.'s (EPA:AI) Balance Sheet Tell Us About Its Future?
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The size of L'Air Liquide S.A. (EPA:AI), a €48b large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to their continued success lies in its financial health. Today we will look at L'Air Liquide S.A’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 AI here.
View our latest analysis for L'Air Liquide S.A
AI’s Debt (And Cash Flows)
AI's debt levels have fallen from €15b to €14b over the last 12 months – this includes long-term debt. With this debt payback, AI currently has €1.7b remaining in cash and short-term investments , ready to be used for running the business. On top of this, AI has generated €4.7b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 33%, meaning that AI’s debt is appropriately covered by operating cash.
Can AI pay its short-term liabilities?
With current liabilities at €7.4b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.91x. The current ratio is the number you get when you divide current assets by current liabilities.
Is AI’s debt level acceptable?
With a debt-to-equity ratio of 78%, AI can be considered as an above-average leveraged company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. The sustainability of AI’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For AI, the ratio of 9.06x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like AI are considered a risk-averse investment.
Next Steps:
AI’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I'm sure AI has company-specific issues impacting its capital structure decisions. I suggest you continue to research L'Air Liquide S.A to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AI’s future growth? Take a look at our free research report of analyst consensus for AI’s outlook.
Valuation: What is AI 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 AI 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.
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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.
