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Mid-caps stocks, like Washington H Soul Pattinson and Company Limited (ASX:SOL) with a market capitalization of AU$4.85B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. SOL’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. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into SOL here. See our latest analysis for Washington H. Soul Pattinson
How does SOL’s operating cash flow stack up against its debt?
SOL has shrunken its total debt levels in the last twelve months, from AU$87.73M to AU$75.48M , which is made up of current and long term debt. With this debt payback, SOL currently has AU$349.31M remaining in cash and short-term investments for investing into the business. Additionally, SOL has generated AU$399.39M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 529.12%, signalling that SOL’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SOL’s case, it is able to generate 5.29x cash from its debt capital.
Can SOL pay its short-term liabilities?
Looking at SOL’s most recent AU$169.37M liabilities, the company has been able to meet these obligations given the level of current assets of AU$555.15M, with a current ratio of 3.28x. However, a ratio greater than 3x may be considered as too high, as SOL could be holding too much capital in a low-return investment environment.
Does SOL face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Washington H. Soul Pattinson has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with SOL, and the company has plenty of headroom and ability to raise debt should it need to in the future.