What does KION GROUP AG's (ETR:KGX) Balance Sheet Tell Us About Its Future?

Stocks with market capitalization between $2B and $10B, such as KION GROUP AG (XTRA:KGX) with a size of €8.18B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. KGX’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KGX here. View our latest analysis for KION GROUP

Does KGX generate enough cash through operations?

Over the past year, KGX has reduced its debt from €4.67B to €3.94B , which comprises of short- and long-term debt. With this reduction in debt, KGX's cash and short-term investments stands at €231.90M for investing into the business. Additionally, KGX has generated cash from operations of €615.80M during the same period of time, resulting in an operating cash to total debt ratio of 15.62%, meaning that KGX’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In KGX’s case, it is able to generate 0.16x cash from its debt capital.

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

At the current liabilities level of €2.85B liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.87x, which is below the prudent industry ratio of 3x.

Can KGX service its debt comfortably?

With total debt exceeding equities, KGX is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether KGX 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 KGX's, case, the ratio of 7.72x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as KGX’s high interest coverage is seen as responsible and safe practice.

Next Steps:

KGX’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven't considered other factors such as how KGX has been performing in the past. I recommend you continue to research KION GROUP to get a better picture of the stock by looking at:

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

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.