Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Mainova AG (FRA:MNV6) with a market-capitalization of €2.1b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at MNV6’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MNV6 here.
Check out our latest analysis for Mainova
MNV6’s Debt (And Cash Flows)
MNV6 has sustained its debt level by about €614m over the last 12 months – this includes long-term debt. At this stable level of debt, MNV6’s cash and short-term investments stands at €163m to keep the business going. Moreover, MNV6 has produced cash from operations of €227m over the same time period, resulting in an operating cash to total debt ratio of 37%, indicating that MNV6’s current level of operating cash is high enough to cover debt.
Can MNV6 meet its short-term obligations with the cash in hand?
At the current liabilities level of €593m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.97x. The current ratio is calculated by dividing current assets by current liabilities.
Does MNV6 face the risk of succumbing to its debt-load?
With debt reaching 49% of equity, MNV6 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. We can test if MNV6’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For MNV6, the ratio of 6.47x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MNV6’s high interest coverage is seen as responsible and safe practice.
Next Steps:
MNV6’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for MNV6’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Mainova to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MNV6’s future growth? Take a look at our free research report of analyst consensus for MNV6’s outlook.
- Valuation: What is MNV6 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 MNV6 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.
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