Stocks with market capitalization between $2B and $10B, such as Strabag SE (VIE:STR) with a size of €3.1b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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. Today we will look at STR’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into STR here.
How does STR’s operating cash flow stack up against its debt?
Over the past year, STR has ramped up its debt from €1.3b to €1.5b , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €2.1b , ready to deploy into the business. On top of this, STR has produced €1.3b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 90%, meaning that STR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In STR’s case, it is able to generate 0.9x cash from its debt capital.
Can STR pay its short-term liabilities?
With current liabilities at €5.6b, the company has been able to meet these obligations given the level of current assets of €6.7b, with a current ratio of 1.21x. Generally, for Construction companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is STR’s debt level acceptable?
With debt reaching 42% of equity, STR 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.
STR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around STR’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for STR’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Strabag to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for STR’s future growth? Take a look at our free research report of analyst consensus for STR’s outlook.
- Valuation: What is STR 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 STR is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.