Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Elkem AS (OB:ELK), with a market cap of ØRE16.86B, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. ELK’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ELK here. View our latest analysis for Elkem

Does ELK generate enough cash through operations?

ELK’s debt levels have fallen from ØRE3.38B to ØRE3.11B over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at ØRE1.23B , ready to deploy into the business. On top of this, ELK has generated cash from operations of ØRE1.30B over the same time period, resulting in an operating cash to total debt ratio of 41.89%, meaning that ELK’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 ELK’s case, it is able to generate 0.42x cash from its debt capital.

Does ELK’s liquid assets cover its short-term commitments?

With current liabilities at ØRE2.96B, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.4x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Does ELK face the risk of succumbing to its debt-load?

ELK is a relatively highly levered company with a debt-to-equity of 41.73%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether ELK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ELK’s, case, the ratio of 16.49x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.