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Tenaris S.A. (BIT:TEN), a large-cap worth €13b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for TEN to determine is solvency and liquidity and whether the stock is a sound investment.
Does TEN Produce Much Cash Relative To Its Debt?
TEN has shrunk its total debt levels in the last twelve months, from US$1.0b to US$911m – this includes long-term debt. With this reduction in debt, TEN’s cash and short-term investments stands at US$1.3b to keep the business going. On top of this, TEN has generated US$1.2b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 130%, signalling that TEN’s operating cash is sufficient to cover its debt.
Can TEN pay its short-term liabilities?
With current liabilities at US$1.8b, the company has been able to meet these commitments with a current assets level of US$5.6b, leading to a 3.13x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Does TEN face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. With a debt-to-equity ratio of 7.5%, TEN’s debt level is relatively low. TEN is not taking on too much debt commitment, which may be constraining for future growth.
TEN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TEN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tenaris to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TEN’s future growth? Take a look at our free research report of analyst consensus for TEN’s outlook.
- Valuation: What is TEN 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 TEN 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.