Chipotle Mexican Grill Inc (NYSE:CMG): Financial Strength Analysis

Chipotle Mexican Grill Inc (NYSE:CMG), a large-cap worth US$13.1b, 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. 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. Using the most recent data for CMG, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

View our latest analysis for Chipotle Mexican Grill

Does CMG face the risk of succumbing to its debt-load?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For Chipotle Mexican Grill, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with CMG, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Can CMG pay its short-term liabilities?

Given zero long-term debt on its balance sheet, Chipotle Mexican Grill has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at CMG’s most recent US$403m liabilities, the company has been able to meet these obligations given the level of current assets of US$793m, with a current ratio of 1.97x. Generally, for Hospitality companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Next Steps:

CMG has zero debt as well as ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I'm sure CMG has company-specific issues impacting its capital structure decisions. You should continue to research Chipotle Mexican Grill to get a better picture of the stock by looking at:

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

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.