With a market capitalization of US$12b, Tiffany & Co. (NYSE:TIF) 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. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for TIF, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
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Does TIF Produce Much Cash Relative To Its Debt?
Over the past year, TIF has maintained its debt levels at around US$997m which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$855m , ready to be used for running the business. On top of this, TIF has produced cash from operations of US$532m during the same period of time, resulting in an operating cash to total debt ratio of 53%, indicating that TIF’s operating cash is sufficient to cover its debt.
Can TIF pay its short-term liabilities?
At the current liabilities level of US$718m, it appears that the company has been able to meet these obligations given the level of current assets of US$3.8b, with a current ratio of 5.24x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Does TIF face the risk of succumbing to its debt-load?
With debt at 32% of equity, TIF may be thought of as appropriately levered. TIF is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether TIF is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In TIF’s case, the ratio of 19.53x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes TIF and other large-cap investments thought to be safe.
TIF’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. This is only a rough assessment of financial health, and I’m sure TIF has company-specific issues impacting its capital structure decisions. You should continue to research Tiffany to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TIF’s future growth? Take a look at our free research report of analyst consensus for TIF’s outlook.
- Valuation: What is TIF 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 TIF 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.