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Coats Group plc, a company in the consumer cyclical, continues to manage its debt, which remains a significant focus for stakeholders. As of June 2024, Coats Group reported US$511.2 million in debt, consistent with the previous year. However, the company holds a cash reserve of US$130.7 million, resulting in a net debt of approximately US$380.5 million.
The company’s balance sheet shows liabilities of US$537.5 million due within the next year and US$605.8 million due beyond one year. In contrast, Coats Group (LSE:COA) has cash and receivables amounting to US$442.1 million. This creates a net liability of US$701.2 million, which is offset by the company’s market value of US$1.99 billion, suggesting a potential to raise additional capital if necessary.
Debt risk is assessed through various metrics, including net debt relative to earnings before interest, tax, depreciation, and amortization (EBITDA) and the coverage of interest expenses by earnings before interest and tax (EBIT). Coats Group's net debt is 1.3 times its EBITDA, indicating a conservative approach to leveraging. The interest coverage ratio stands at 7.4 times EBIT, reflecting a solid capacity to meet interest obligations.
Despite these positive metrics, Coats Group's free cash flow accounts for only 41% of EBIT over the past three years. This figure is lower than expected, suggesting that while debt management appears stable, the company's ability to generate sufficient free cash flow to reduce debt might be a concern.
Coats Group's debt management appears conservative, but its lower free cash flow generation might influence future financial stability. The ability to pay down debt will depend on the company's ongoing profitability and cash flow performance.
