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An Investor's Guide: Is Ferrari Racing on a Rough Road?

PART:
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Part 17
An Investor's Guide: Is Ferrari Racing on a Rough Road? PART 17 OF 20

Analyzing Ferrari’s Leverage Condition

Debt and liabilities

In this article, we’ll take a look at Ferrari’s leverage condition. In 2014, Ferrari (RACE) reported a total debt of 510 million euros against 318 million euros in 2013, an increase of nearly 61%. The major portion of this debt is with FCA Group and the majority of debt is used in financing Ferrari’s financial services. With this, the company managed a debt-to-equity ratio of 20.6% and a debt-to-capital ratio of 17.1% in 2014.

Analyzing Ferrari’s Leverage Condition

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The company has a net-debt-to-EBITDA ratio of 0.55. Net debt to EBITDA is one of the most important aspects in understanding how long a company may take to pay off its liabilities. Notably, Fiat Chrysler Automobiles (FCAU) and Volkswagen (VLKAY) both have a negative net debt to EBITDA, as seen in the chart above.

Current and quick ratio

Ferrari’s strong current ratio of 2.4 for the past one year makes it a financially strong business and showcases its ability to pay back its short-term liabilities. This ratio also is higher than the industry average of 1.3 for the given period. In the near term, if Ferrari plans to increase its production capacity aggressively then it shouldn’t be difficult for a stable business like Ferrari to arrange the funds to execute this strategy. Current ratio can be seen as a measure of the time required by a company to convert its working capital assets into cash to meet its current obligation.

In 2014, Ferrari’s quick ratio stood at 0.30 against 0.40 for 2013. The quick ratio tells us that at present Ferrari has around 0.30 euros worth of liquid assets available to cover each euro of its short-term liabilities. As of January 5, 2016, General Motors (GM) makes up nearly 4.6% of the First Trust US IPO Index Fund ETF (FPX).

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