EnBW Energie Baden-Württemberg AG (FRA:EBK): Time For A Financial Health Check

Stocks with market capitalization between $2B and $10B, such as EnBW Energie Baden-Württemberg AG (FRA:EBK) with a size of €8.8b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine EBK’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 EnBW Energie Baden-Württemberg’s financial health, so you should conduct further analysis into EBK here.

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Check out our latest analysis for EnBW Energie Baden-Württemberg

Does EBK Produce Much Cash Relative To Its Debt?

Over the past year, EBK has maintained its debt levels at around €7.2b – this includes long-term debt. At this stable level of debt, EBK currently has €2.9b remaining in cash and short-term investments to keep the business going. Moreover, EBK has generated cash from operations of €450m in the last twelve months, leading to an operating cash to total debt ratio of 6.3%, signalling that EBK’s operating cash is less than its debt.

Can EBK pay its short-term liabilities?

With current liabilities at €11b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.15x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Electric Utilities companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

DB:EBK Historical Debt, May 27th 2019
DB:EBK Historical Debt, May 27th 2019

Does EBK face the risk of succumbing to its debt-load?

EBK is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

EBK’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 EBK’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure EBK has company-specific issues impacting its capital structure decisions. You should continue to research EnBW Energie Baden-Württemberg to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for EBK’s future growth? Take a look at our free research report of analyst consensus for EBK’s outlook.
  2. Historical Performance: What has EBK’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  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.

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 editorial-team@simplywallst.com. 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.