In This Article:
Mid-caps stocks, like bioMérieux SA (EPA:BIM) with a market capitalization of €8.48b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine BIM’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 BIM here.
Check out our latest analysis for bioMérieux
How much cash does BIM generate through its operations?
BIM has sustained its debt level by about €455.4m over the last 12 months comprising of short- and long-term debt. At this current level of debt, BIM currently has €194.3m remaining in cash and short-term investments for investing into the business. On top of this, BIM has produced cash from operations of €355.2m over the same time period, resulting in an operating cash to total debt ratio of 78.0%, signalling that BIM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BIM’s case, it is able to generate 0.78x cash from its debt capital.
Does BIM’s liquid assets cover its short-term commitments?
With current liabilities at €599.3m, it seems that the business has been able to meet these obligations given the level of current assets of €1.19b, with a current ratio of 1.99x. Generally, for Medical Equipment companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BIM face the risk of succumbing to its debt-load?
With debt at 24.8% of equity, BIM may be thought of as appropriately levered. This range is considered safe as BIM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BIM’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 BIM, the ratio of 24.25x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BIM’s high interest coverage is seen as responsible and safe practice.