Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Viva Energy Group Limited (ASX:VEA), with a market cap of AU$4.63b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine VEA’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into VEA here.
How much cash does VEA generate through its operations?
VEA’s cash and short-term investments stands at AU$164.7m for investing into the business. Additionally, VEA has generated AU$381.0m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 131%, meaning that VEA’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 VEA’s case, it is able to generate 1.31x cash from its debt capital.
Can VEA pay its short-term liabilities?
Looking at VEA’s most recent AU$2.13b liabilities, the company has been able to meet these obligations given the level of current assets of AU$2.37b, with a current ratio of 1.11x. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does VEA face the risk of succumbing to its debt-load?
VEA’s level of debt is appropriate relative to its total equity, at 13.0%. This range is considered safe as VEA is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether VEA is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In VEA’s, case, the ratio of 15.03x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
VEA’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how VEA has been performing in the past. I recommend you continue to research Viva Energy Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VEA’s future growth? Take a look at our free research report of analyst consensus for VEA’s outlook.
- Valuation: What is VEA 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 VEA 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.
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 firstname.lastname@example.org.