In This Article:
The size of DSV A/S (CPSE:DSV), a Ø90.54B large-cap, often attracts investors seeking a reliable investment in the stock market. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, its financial health remains the key to continued success. I will provide an overview of DSV’s financial liquidity and leverage to give you an idea of DSV’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 DSV here. Check out our latest analysis for DSV
How much cash does DSV generate through its operations?
Over the past year, DSV has reduced its debt from Ø10.06B to Ø6.96B , which is made up of current and long term debt. With this reduction in debt, DSV currently has Ø1.35B remaining in cash and short-term investments , ready to deploy into the business. Moreover, DSV has generated Ø4.66B in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 67.04%, meaning that DSV’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 DSV’s case, it is able to generate 0.67x cash from its debt capital.
Can DSV meet its short-term obligations with the cash in hand?
With current liabilities at Ø15.18B, the company has been able to meet these obligations given the level of current assets of Ø18.16B, with a current ratio of 1.2x. Generally, for Transportation 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.
Can DSV service its debt comfortably?
DSV is a relatively highly levered company with a debt-to-equity of 53.45%. 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 put the sustainability of DSV’s debt levels to the test by looking at how well interest payments are covered by earnings. 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 DSV’s case, the ratio of 20.14x suggests that interest is amply covered. Large-cap investments like DSV are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.