Yahoo Finance Is MAN SE’s (FRA:MAN) Balance Sheet A Threat To Its Future?
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There are a number of reasons that attract investors towards large-cap companies such as MAN SE (FRA:MAN), with a market cap of €13b. 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. This article will examine MAN’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MAN here.
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How does MAN’s operating cash flow stack up against its debt?
MAN’s debt levels surged from €3.0b to €3.5b over the last 12 months , which accounts for long term debt. With this rise in debt, MAN currently has €1.1b remaining in cash and short-term investments for investing into the business. Additionally, MAN has generated €166m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 4.7%, meaning that MAN’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MAN’s case, it is able to generate 0.047x cash from its debt capital.
Can MAN pay its short-term liabilities?
With current liabilities at €8.7b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.89x.
Is MAN’s debt level acceptable?
With debt reaching 56% of equity, MAN may be thought of as relatively highly levered. 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. By measuring how many times MAN’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 MAN’s case, the ratio of 8.52x suggests that interest is well-covered. Large-cap investments like MAN are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
MAN’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. I admit this is a fairly basic analysis for MAN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research MAN to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MAN’s future growth? Take a look at our free research report of analyst consensus for MAN’s outlook.
Valuation: What is MAN 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 MAN 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
