Does AUDI AG's (FRA:NSU) Debt Level Pose A Problem?

Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as AUDI AG (DB:NSU) a safer option. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to extending previous success is in the health of the company’s financials. I will provide an overview of AUDI’s financial liquidity and leverage to give you an idea of AUDI’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 NSU here. Check out our latest analysis for AUDI

Does NSU produce enough cash relative to debt?

NSU's debt levels have fallen from €816.00M to €647.00M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, NSU's cash and short-term investments stands at €18.50B , ready to deploy into the business. On top of this, NSU has generated cash from operations of €6.17B over the same time period, leading to an operating cash to total debt ratio of 954.10%, meaning that NSU’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 NSU’s case, it is able to generate 9.54x cash from its debt capital.

Does NSU’s liquid assets cover its short-term commitments?

Looking at NSU’s most recent €21.21B liabilities, the company has been able to meet these commitments with a current assets level of €34.21B, leading to a 1.61x current account ratio. Usually, for Auto companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can NSU service its debt comfortably?

Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. NSU’s level of debt is low relative to its total equity, at 2.30%. This range is considered safe as NSU is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

NSU’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how NSU has been performing in the past. I recommend you continue to research AUDI to get a more holistic view of the stock by looking at:

1. Valuation: What is NSU 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 NSU is currently mispriced by the market.
2. Historical Performance: What has NSU'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.
3. 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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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.