How Financially Strong Is MAN SE (FRA:MAN)?

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Stocks with market capitalization between $2B and $10B, such as MAN SE (FRA:MAN) with a size of €8.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. MAN’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MAN here.

View our latest analysis for MAN

Does MAN Produce Much Cash Relative To Its Debt?

MAN's debt levels surged from €3.1b to €4.2b over the last 12 months – this includes long-term debt. With this increase in debt, MAN's cash and short-term investments stands at €3.3b , ready to be used for running the business. Moreover, MAN has produced cash from operations of €544m in the last twelve months, leading to an operating cash to total debt ratio of 13%, indicating that MAN’s operating cash is less than its debt.

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

With current liabilities at €8.6b, it appears that the company may not be able to easily meet these obligations given the level of current assets of €7.3b, with a current ratio of 0.85x. The current ratio is calculated by dividing current assets by current liabilities.

DB:MAN Historical Debt, June 26th 2019
DB:MAN Historical Debt, June 26th 2019

Is MAN’s debt level acceptable?

MAN is a relatively highly levered company with a debt-to-equity of 75%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if MAN’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 MAN, the ratio of 13.17x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving MAN ample headroom to grow its debt facilities.

Next Steps:

Although MAN’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 low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for MAN's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research MAN to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MAN’s future growth? Take a look at our free research report of analyst consensus for MAN’s outlook.

  2. Historical Performance: What has MAN's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.