Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Great Plains Energy Incorporated (NYSE:GXP), with a market cap of US$6.86B, are often out of the spotlight. 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 GXP’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into GXP here. Check out our latest analysis for Great Plains Energy

Does GXP generate an acceptable amount of cash through operations?

Over the past year, GXP has maintained its debt levels at around US$4.23B comprising of short- and long-term debt. At this constant level of debt, GXP’s cash and short-term investments stands at US$1.22B , ready to deploy into the business. Moreover, GXP has produced cash from operations of US$810.50M in the last twelve months, resulting in an operating cash to total debt ratio of 19.15%, signalling that GXP’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In GXP’s case, it is able to generate 0.19x cash from its debt capital.

Can GXP pay its short-term liabilities?

Looking at GXP’s most recent US$1.45B liabilities, the company has been able to meet these commitments with a current assets level of US$1.86B, leading to a 1.29x current account ratio. Usually, for Electric Utilities companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Can GXP service its debt comfortably?

GXP is a relatively highly levered company with a debt-to-equity of 87.75%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since GXP is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

At its current level of cash flow coverage, GXP has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure GXP has company-specific issues impacting its capital structure decisions. You should continue to research Great Plains Energy to get a more holistic view of the stock by looking at: