Stocks with market capitalization between $2B and $10B, such as Autogrill S.p.A. (BIT:AGL) with a size of €2.2b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at AGL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AGL here.
Does AGL Produce Much Cash Relative To Its Debt?
AGL has built up its total debt levels in the last twelve months, from €750m to €938m – this includes long-term debt. With this increase in debt, AGL currently has €251m remaining in cash and short-term investments , ready to be used for running the business. Additionally, AGL has generated €324m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 35%, indicating that AGL’s operating cash is sufficient to cover its debt.
Does AGL’s liquid assets cover its short-term commitments?
With current liabilities at €844m, the company may not be able to easily meet these obligations given the level of current assets of €587m, with a current ratio of 0.7x. The current ratio is calculated by dividing current assets by current liabilities.
Is AGL’s debt level acceptable?
AGL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if AGL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AGL, the ratio of 5.15x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AGL ample headroom to grow its debt facilities.
AGL’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 mid-cap. I admit this is a fairly basic analysis for AGL's financial health. Other important fundamentals need to be considered alongside. You should continue to research Autogrill to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AGL’s future growth? Take a look at our free research report of analyst consensus for AGL’s outlook.
- Valuation: What is AGL 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 AGL 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 email@example.com. 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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