What You Must Know About Wizz Air Holdings Plc's (LON:WIZZ) Financial Health

Simply Wall St

Fri, Jun 7, 2019, 12:05 AM

Mid-caps stocks, like Wizz Air Holdings Plc (LON:WIZZ) with a market capitalization of UK£2.6b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at WIZZ’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into WIZZ here.

View our latest analysis for Wizz Air Holdings

WIZZ’s Debt (And Cash Flows)

Over the past year, WIZZ has reduced its debt from €32m to €29m , which includes long-term debt. With this debt payback, WIZZ's cash and short-term investments stands at €1.3b , ready to be used for running the business. Moreover, WIZZ has produced €407m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 1404%, indicating that WIZZ’s debt is appropriately covered by operating cash.

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

Looking at WIZZ’s €847m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €1.7b, with a current ratio of 1.99x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Airlines companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does WIZZ face the risk of succumbing to its debt-load?

With debt at 1.9% of equity, WIZZ may be thought of as having low leverage. WIZZ is not taking on too much debt commitment, which may be constraining for future growth. We can test if WIZZ’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For WIZZ, the ratio of 211x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving WIZZ ample headroom to grow its debt facilities.

Next Steps:

WIZZ has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure WIZZ has company-specific issues impacting its capital structure decisions. I recommend you continue to research Wizz Air Holdings to get a more holistic view of the stock by looking at: