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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Cargotec Corporation (HEL:CGCBV), with a market capitalization of €2.1b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at CGCBV’s debt concentration and assess their financial liquidity 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 top-level understanding, so I encourage you to look further into CGCBV here.
Check out our latest analysis for Cargotec
Does CGCBV produce enough cash relative to debt?
Over the past year, CGCBV has maintained its debt levels at around €807m comprising of short- and long-term debt. At this current level of debt, CGCBV’s cash and short-term investments stands at €170m , ready to deploy into the business. On top of this, CGCBV has generated cash from operations of €149m in the last twelve months, resulting in an operating cash to total debt ratio of 18%, indicating that CGCBV’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CGCBV’s case, it is able to generate 0.18x cash from its debt capital.
Does CGCBV’s liquid assets cover its short-term commitments?
With current liabilities at €1.4b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.2x. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CGCBV service its debt comfortably?
CGCBV is a relatively highly levered company with a debt-to-equity of 58%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CGCBV’s case, the ratio of 13.84x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving CGCBV ample headroom to grow its debt facilities.
Next Steps:
CGCBV’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CGCBV has been performing in the past. I recommend you continue to research Cargotec to get a better picture of the stock by looking at: