Yahoo Finance What You Must Know About Swisscom AG’s (VTX:SCMN) Financial Strength
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Swisscom AG (VTX:SCMN) a safer option. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, its financial health remains the key to continued success. I will provide an overview of Swisscom’s financial liquidity and leverage to give you an idea of Swisscom’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 SCMN here.
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Does SCMN produce enough cash relative to debt?
Over the past year, SCMN has maintained its debt levels at around CHF9.0b comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at CHF591m , ready to deploy into the business. Moreover, SCMN has generated CHF3.8b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 42%, signalling that SCMN’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SCMN’s case, it is able to generate 0.42x cash from its debt capital.
Does SCMN’s liquid assets cover its short-term commitments?
Looking at SCMN’s most recent CHF4.8b liabilities, the company may not have an easy time meeting these commitments with a current assets level of CHF4.2b, leading to a current ratio of 0.87x.
Can SCMN service its debt comfortably?
Swisscom is a highly levered company given that total debt exceeds equity. 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 SCMN’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For SCMN, the ratio of 15.54x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes SCMN and other large-cap investments thought to be safe.
Next Steps:
SCMN’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. But, its lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven’t considered other factors such as how SCMN has been performing in the past. I recommend you continue to research Swisscom to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SCMN’s future growth? Take a look at our free research report of analyst consensus for SCMN’s outlook.
Valuation: What is SCMN 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 SCMN 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.
