In This Article:
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Mercury NZ Limited (NZSE:MCY), with a market capitalization of NZ$4.7b, 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. Today we will look at MCY’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Mercury NZ’s financial health, so you should conduct further analysis into MCY here.
Check out our latest analysis for Mercury NZ
Does MCY produce enough cash relative to debt?
Over the past year, MCY has ramped up its debt from NZ$1.2b to NZ$1.4b , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at NZ$17m for investing into the business. On top of this, MCY has produced NZ$371m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 27%, indicating that MCY’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MCY’s case, it is able to generate 0.27x cash from its debt capital.
Can MCY pay its short-term liabilities?
At the current liabilities level of NZ$584m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.51x.
Can MCY service its debt comfortably?
MCY is a relatively highly levered company with a debt-to-equity of 42%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 MCY’s case, the ratio of 4.04x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MCY’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although MCY’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how MCY has been performing in the past. You should continue to research Mercury NZ to get a better picture of the stock by looking at: