What You Must Know About The Kraft Heinz Company's (NASDAQ:KHC) Financial Strength

There are a number of reasons that attract investors towards large-cap companies such as The Kraft Heinz Company (NASDAQ:KHC), with a market cap of US$70.61B. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the health of the financials determines whether the company continues to succeed. I will provide an overview of Kraft Heinz’s financial liquidity and leverage to give you an idea of Kraft Heinz’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into KHC here. View our latest analysis for Kraft Heinz

Does KHC produce enough cash relative to debt?

KHC's debt level has been constant at around US$31.54B over the previous year – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$1.63B for investing into the business. Moreover, KHC has generated cash from operations of US$527.00M during the same period of time, leading to an operating cash to total debt ratio of 1.67%, meaning that KHC’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KHC’s case, it is able to generate 0.017x cash from its debt capital.

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

At the current liabilities level of US$10.13B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$7.27B, leading to a 0.72x current account ratio. which is under the appropriate industry ratio of 3x.

Can KHC service its debt comfortably?

With a debt-to-equity ratio of 48.60%, KHC can be considered as an above-average leveraged company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can check to see whether KHC 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. In KHC's case, the ratio of 5.88x suggests that interest is well-covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like KHC are considered a risk-averse investment.

Next Steps:

KHC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I'm sure KHC has company-specific issues impacting its capital structure decisions. I recommend you continue to research Kraft Heinz to get a better picture of the stock by looking at:

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

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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.