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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Christian Dior SE (EPA:CDI). With a market valuation of €83b, CDI is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for CDI to determine is solvency and liquidity and whether the stock is a sound investment.

View our latest analysis for Christian Dior

CDI’s Debt (And Cash Flows)

CDI has sustained its debt level by about €12b over the last 12 months which accounts for long term debt. At this constant level of debt, CDI's cash and short-term investments stands at €11b to keep the business going. Additionally, CDI has generated cash from operations of €8.4b during the same period of time, leading to an operating cash to total debt ratio of 71%, indicating that CDI’s operating cash is sufficient to cover its debt.

Can CDI meet its short-term obligations with the cash in hand?

At the current liabilities level of €17b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.7x. The current ratio is calculated by dividing current assets by current liabilities. For Luxury companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

Is CDI’s debt level acceptable?

With a debt-to-equity ratio of 33%, CDI's debt level may be seen as prudent. CDI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if CDI’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CDI's case, the ratio of 86.66x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as CDI is a safe investment.

Next Steps:

CDI’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how CDI has been performing in the past. You should continue to research Christian Dior to get a better picture of the stock by looking at: