Yahoo Finance How Financially Strong Is TUI AG (ETR:TUI1)?
TUI AG (XTRA:TUI1), a large-cap worth €11.57B, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the key to their continued success lies in its financial health. I will provide an overview of TUI’s financial liquidity and leverage to give you an idea of TUI’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TUI1 here. See our latest analysis for TUI
How much cash does TUI1 generate through its operations?
TUI1 has shrunken its total debt levels in the last twelve months, from €2.04B to €1.93B , which is made up of current and long term debt. With this reduction in debt, TUI1 currently has €2.52B remaining in cash and short-term investments , ready to deploy into the business. Moreover, TUI1 has produced €1.58B in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 81.89%, meaning that TUI1’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 TUI1’s case, it is able to generate 0.82x cash from its debt capital.
Can TUI1 pay its short-term liabilities?
At the current liabilities level of €6.53B liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.66x, which is below the prudent industry ratio of 3x.
Does TUI1 face the risk of succumbing to its debt-load?
TUI1 is a relatively highly levered company with a debt-to-equity of 66.08%. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can test if TUI1’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In TUI1’s case, the ratio of 6.56x suggests that interest is well-covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes TUI1 and other large-cap investments thought to be safe.
Next Steps:
Although TUI1’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. Keep in mind I haven’t considered other factors such as how TUI1 has been performing in the past. I suggest you continue to research TUI to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for TUI1’s future growth? Take a look at our free research report of analyst consensus for TUI1’s outlook.
Valuation: What is TUI1 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 TUI1 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.
