Yahoo Finance Does Vonovia SE's (ETR:VNA) Debt Level Pose A Problem?
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Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Vonovia SE (ETR:VNA) a safer option. 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, the health of the financials determines whether the company continues to succeed. This article will examine Vonovia’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into VNA here.
See our latest analysis for Vonovia
VNA’s Debt (And Cash Flows)
Over the past year, VNA has ramped up its debt from €14b to €20b , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €548m , ready to be used for running the business. Additionally, VNA has generated cash from operations of €1.1b in the last twelve months, leading to an operating cash to total debt ratio of 5.6%, meaning that VNA’s current level of operating cash is not high enough to cover debt.
Can VNA pay its short-term liabilities?
With current liabilities at €4.1b, it appears that the company may not be able to easily meet these obligations given the level of current assets of €1.7b, with a current ratio of 0.42x. The current ratio is calculated by dividing current assets by current liabilities.
Is VNA’s debt level acceptable?
Vonovia is a highly levered company given that total debt exceeds equity. 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. We can assess the sustainability of VNA’s debt levels to the test by looking at how well interest payments are covered by earnings. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. For VNA, the ratio of 3.57x suggests that interest is well-covered. Large-cap investments like VNA are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
VNA’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 VNA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Vonovia to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for VNA’s future growth? Take a look at our free research report of analyst consensus for VNA’s outlook.
Historical Performance: What has VNA's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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