Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Just Eat plc (LON:JE.), with a market cap of UK£3.9b, often get neglected by retail investors. 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. This article will examine JE.’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Just Eat’s financial health, so you should conduct further analysis into JE. here.

See our latest analysis for Just Eat

How much cash does JE. generate through its operations?

JE.’s debt levels surged from UK£1.0m to UK£106m over the last 12 months , which includes long-term debt. With this rise in debt, JE. currently has UK£157m remaining in cash and short-term investments , ready to deploy into the business. Additionally, JE. has produced UK£164m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 155%, meaning that JE.’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In JE.’s case, it is able to generate 1.55x cash from its debt capital.

Can JE. meet its short-term obligations with the cash in hand?

Looking at JE.’s UK£266m in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.7x.

Is JE.’s debt level acceptable?

JE.’s level of debt is appropriate relative to its total equity, at 14%. JE. is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with JE., and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

JE.’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for JE., especially if meeting short-term obligations could also bring about issues. Keep in mind I haven’t considered other factors such as how JE. has been performing in the past. I suggest you continue to research Just Eat to get a better picture of the stock by looking at:

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

2. Valuation: What is JE. 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 JE. 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.