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 €4.95b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of 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
How much cash does KESKOB generate through its operations?
KESKOB has sustained its debt level by about €533.90m over the last 12 months made up of current and long term debt. At this constant level of debt, KESKOB’s cash and short-term investments stands at €397.90m for investing into the business. Moreover, KESKOB has produced cash from operations of €301.70m during the same period of time, leading to an operating cash to total debt ratio of 56.51%, meaning that KESKOB’s current level of operating cash is high enough to cover 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 0.57x cash from its debt capital.
Can KESKOB meet its short-term obligations with the cash in hand?
Looking at KESKOB’s most recent €2.00b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €2.38b, with a current ratio of 1.19x. For Consumer Retailing companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does KESKOB face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 24.13%, KESKOB’s debt level may be seen as prudent. KESKOB is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 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 inclined to lend more money to the company, as it is seen as safe in terms of payback.
KESKOB has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, 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 KESKOB has been performing in the past. I recommend you continue to research Kesko Oyj to get a better picture 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.