What Investors Should Know About Coca-Cola FEMSA, S.A.B. de C.V.'s (NYSE:KOF) Financial Strength
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Investors pursuing a solid, dependable stock investment can often be led to Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), a large-cap worth US$109b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to extending previous success is in the health of the company’s financials. Today we will look at Coca-Cola FEMSA. de’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into KOF here.
See our latest analysis for Coca-Cola FEMSA. de
KOF’s Debt (And Cash Flows)
Over the past year, KOF has maintained its debt levels at around Mex$78b – this includes long-term debt. At this current level of debt, KOF's cash and short-term investments stands at Mex$24b , ready to be used for running the business. Additionally, KOF has generated Mex$32b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 41%, signalling that KOF’s current level of operating cash is high enough to cover debt.
Can KOF pay its short-term liabilities?
With current liabilities at Mex$56b, it seems that the business may not have an easy time meeting these commitments with a current assets level of Mex$54b, leading to a current ratio of 0.95x. The current ratio is the number you get when you divide current assets by current liabilities.
Does KOF face the risk of succumbing to its debt-load?
KOF is a relatively highly levered company with a debt-to-equity of 61%. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. By measuring how many times KOF’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For KOF, the ratio of 3.99x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like KOF are considered a risk-averse investment.
Next Steps:
Although KOF’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 lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I'm sure KOF has company-specific issues impacting its capital structure decisions. I recommend you continue to research Coca-Cola FEMSA. de to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KOF’s future growth? Take a look at our free research report of analyst consensus for KOF’s outlook.
Valuation: What is KOF 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 KOF 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.
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.
