What Investors Should Know About Barry Callebaut AG's (VTX:BARN) Financial Strength
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Investors pursuing a solid, dependable stock investment can often be led to Barry Callebaut AG (VTX:BARN), a large-cap worth CHF10b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, its financial health remains the key to continued success. Let’s take a look at Barry Callebaut’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into BARN here.
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BARN’s Debt (And Cash Flows)
BARN has built up its total debt levels in the last twelve months, from CHF1.6b to CHF2.3b – this includes long-term debt. With this increase in debt, BARN currently has CHF565m remaining in cash and short-term investments , ready to be used for running the business. Moreover, BARN has generated cash from operations of CHF379m over the same time period, leading to an operating cash to total debt ratio of 16%, meaning that BARN’s operating cash is less than its debt.
Does BARN’s liquid assets cover its short-term commitments?
Looking at BARN’s CHF2.3b in current liabilities, the company has been able to meet these obligations given the level of current assets of CHF4.2b, with a current ratio of 1.8x. The current ratio is calculated by dividing current assets by current liabilities. For Food companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BARN service its debt comfortably?
BARN is a relatively highly levered company with a debt-to-equity of 97%. 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. The sustainability of BARN’s debt levels can be assessed by comparing the company’s interest payments to earnings. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In BARN's case, the ratio of 6.3x suggests that interest is appropriately covered. Large-cap investments like BARN are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
At its current level of cash flow coverage, BARN has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for BARN's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Barry Callebaut to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BARN’s future growth? Take a look at our free research report of analyst consensus for BARN’s outlook.
Valuation: What is BARN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BARN is currently mispriced by the market.
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.
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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.
