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Solvay SA (EBR:SOLB), a large-cap worth €11.79b, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the health of the financials determines whether the company continues to succeed. This article will examine Solvay’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into SOLB here.
Check out our latest analysis for Solvay
How much cash does SOLB generate through its operations?
SOLB’s debt levels have fallen from €5.33b to €4.63b over the last 12 months , which is made up of current and long term debt. With this debt repayment, SOLB currently has €1.04b remaining in cash and short-term investments for investing into the business. Additionally, SOLB has generated cash from operations of €1.64b in the last twelve months, leading to an operating cash to total debt ratio of 35.36%, meaning that SOLB’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SOLB’s case, it is able to generate 0.35x cash from its debt capital.
Does SOLB’s liquid assets cover its short-term commitments?
At the current liabilities level of €4.53b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €6.57b, with a current ratio of 1.45x. Generally, for Chemicals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does SOLB face the risk of succumbing to its debt-load?
With debt reaching 46.17% of equity, SOLB may be thought of as relatively highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can assess the sustainability of SOLB’s debt levels to the test by looking at how well interest payments are covered by earnings. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SOLB’s case, the ratio of 10.59x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes SOLB and other large-cap investments thought to be safe.