Has Telefónica Deutschland Holding AG (FRA:O2D) Got Enough Cash?

Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Telefónica Deutschland Holding AG (FRA:O2D). With a market valuation of €10.68b, O2D is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are relatively unimpacted by interest rate hikes. Using the most recent data for O2D, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

See our latest analysis for Telefónica Deutschland Holding

Does O2D produce enough cash relative to debt?

O2D’s debt levels surged from €1.75b to €2.16b over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, O2D’s cash and short-term investments stands at €852.00m for investing into the business. Moreover, O2D has produced €1.68b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 77.76%, signalling that O2D’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In O2D’s case, it is able to generate 0.78x cash from its debt capital.

Does O2D’s liquid assets cover its short-term commitments?

At the current liabilities level of €3.43b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.78x, which is below the prudent industry ratio of 3x.

DB:O2D Historical Debt July 25th 18
DB:O2D Historical Debt July 25th 18

Can O2D service its debt comfortably?

O2D’s level of debt is appropriate relative to its total equity, at 25.42%. This range is considered safe as O2D is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with O2D, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

O2D’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Though 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 O2D has been performing in the past. You should continue to research Telefónica Deutschland Holding to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for O2D’s future growth? Take a look at our free research report of analyst consensus for O2D’s outlook.
  2. Valuation: What is O2D 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 O2D is currently mispriced by the market.
  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.

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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.