Yahoo Finance What does AmRest Holdings SE’s (WSE:EAT) Balance Sheet Tell Us About Its Future?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as AmRest Holdings SE (WSE:EAT), with a market cap of ZŁ10.11B, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at EAT’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EAT here. View our latest analysis for AmRest Holdings
Does EAT generate an acceptable amount of cash through operations?
EAT’s debt levels surged from €288.53M to €473.62M over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €131.23M for investing into the business. On top of this, EAT has produced €151.95M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 32.08%, meaning that EAT’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In EAT’s case, it is able to generate 0.32x cash from its debt capital.
Can EAT meet its short-term obligations with the cash in hand?
With current liabilities at €230.67M, the company is not able to meet these obligations given the level of current assets of €222.52M, with a current ratio of 0.96x below the prudent level of 3x.
Is EAT’s debt level acceptable?
With total debt exceeding equities, EAT is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In EAT’s case, the ratio of 6.12x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving EAT ample headroom to grow its debt facilities.
Next Steps:
Although EAT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how EAT has been performing in the past. I recommend you continue to research AmRest Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EAT’s future growth? Take a look at our free research report of analyst consensus for EAT’s outlook.
Valuation: What is EAT 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 EAT 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.
To help readers see pass 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.
