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With a market capitalization of €170b, LVMH Moët Hennessy - Louis Vuitton, Société Européenne (EPA:MC) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for MC to determine is solvency and liquidity and whether the stock is a sound investment.
MC’s Debt (And Cash Flows)
MC has sustained its debt level by about €11b over the last 12 months including long-term debt. At this current level of debt, MC's cash and short-term investments stands at €5.3b to keep the business going. Moreover, MC has produced €8.5b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 77%, signalling that MC’s operating cash is sufficient to cover its debt.
Does MC’s liquid assets cover its short-term commitments?
At the current liabilities level of €17b, it seems that the business has been able to meet these commitments with a current assets level of €24b, leading to a 1.4x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Luxury companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MC’s debt level acceptable?
MC’s level of debt is appropriate relative to its total equity, at 33%. MC is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For MC, the ratio of 104x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like MC are considered a risk-averse investment.
MC’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for MC's financial health. Other important fundamentals need to be considered alongside. You should continue to research LVMH Moët Hennessy - Louis Vuitton Société Européenne to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MC’s future growth? Take a look at our free research report of analyst consensus for MC’s outlook.
- Valuation: What is MC 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 MC 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.
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