Keppel Corporation Limited (SGX:BN4), a large-cap worth SGD15.69B, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, its financial health remains the key to continued success. I will provide an overview of Keppel’s financial liquidity and leverage to give you an idea of Keppel’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into BN4 here. Check out our latest analysis for Keppel

How much cash does BN4 generate through its operations?

Over the past year, BN4 has ramped up its debt from SGD8,557.3M to SGD9,358.2M , which is made up of current and long term debt. With this rise in debt, BN4 currently has SGD2,148.1M remaining in cash and short-term investments for investing into the business. On top of this, BN4 has generated SGD330.0M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 3.53%, indicating that BN4’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BN4’s case, it is able to generate 0.04x cash from its debt capital.

Can BN4 pay its short-term liabilities?

At the current liabilities level of SGD9,170.5M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.79x. Usually, for Industrials companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does BN4 face the risk of succumbing to its debt-load?

With debt reaching 68.33% of equity, BN4 may be thought of as relatively highly levered. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can test if BN4’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For BN4, the ratio of 9.54x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as BN4 is a safe investment.

Next Steps:

BN4’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 BN4 has been performing in the past. I recommend you continue to research Keppel to get a more holistic view of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for BN4’s future growth? Take a look at our free research report of analyst consensus for BN4’s outlook.

• 2. Valuation: What is BN4 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BN4 is currently mispriced by the market.

• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.