Stocks with market capitalization between $2B and $10B, such as Orora Limited (ASX:ORA) with a size of A$4.00B, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. ORA’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 ORA here. View our latest analysis for Orora
Does ORA generate an acceptable amount of cash through operations?
Over the past year, ORA has ramped up its debt from A$695.7M to A$732.5M – this includes both the current and long-term debt. With this increase in debt, ORA currently has A$58.5M remaining in cash and short-term investments for investing into the business. Moreover, ORA has produced cash from operations of A$351.2M over the same time period, resulting in an operating cash to total debt ratio of 47.95%, indicating that ORA’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ORA’s case, it is able to generate 0.48x cash from its debt capital.
Does ORA’s liquid assets cover its short-term commitments?
At the current liabilities level of A$985.4M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of A$1,170.1M, with a current ratio of 1.19x. For Packaging companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ORA service its debt comfortably?
With debt reaching 47.36% of equity, ORA may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 ORA’s case, the ratio of 7.39x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ORA’s high interest coverage is seen as responsible and safe practice.