Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Kesko Oyj (HEL:KESKOB) with a market-capitalization of €5.12b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. KESKOB’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 KESKOB here. Check out our latest analysis for Kesko Oyj
Does KESKOB produce enough cash relative to debt?
Over the past year, KESKOB has reduced its debt from €591.00m to €540.00m – this includes both the current and long-term debt. With this reduction in debt, KESKOB’s cash and short-term investments stands at €563.00m for investing into the business. Moreover, KESKOB has generated cash from operations of €431.70m over the same time period, resulting in an operating cash to total debt ratio of 79.94%, meaning that KESKOB’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KESKOB’s case, it is able to generate 0.8x cash from its debt capital.
Does KESKOB’s liquid assets cover its short-term commitments?
Looking at KESKOB’s most recent €2.32b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €2.90b, with a current ratio of 1.25x. Usually, for Consumer Retailing companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is KESKOB’s debt level acceptable?
With debt at 24.13% of equity, KESKOB may be thought of as appropriately levered. KESKOB is not taking on too much debt commitment, which may be constraining for future growth. We can test if KESKOB’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 KESKOB, the ratio of 152x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as KESKOB’s high interest coverage is seen as responsible and safe practice.
KESKOB has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for KESKOB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Kesko Oyj to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KESKOB’s future growth? Take a look at our free research report of analyst consensus for KESKOB’s outlook.
- Valuation: What is KESKOB 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 KESKOB 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.