Kemira Oyj (HEL:KEMIRA) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of Kemira Oyj’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
What is Kemira Oyj’s cash yield?
Free cash flow (FCF) is the amount of cash Kemira Oyj has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
There are two methods I will use to evaluate the quality of Kemira Oyj’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Along with a positive operating cash flow, Kemira Oyj also generates a positive free cash flow. However, the yield of 0.99% is not sufficient to compensate for the level of risk investors are taking on. This is because Kemira Oyj’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for Kemira Oyj?Does Kemira Oyj’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. Over the next three years, a double-digit growth in operating cash of 34.62% is expected. The future seems buoyant if Kemira Oyj can maintain its levels of capital expenditure as well. Below is a table of Kemira Oyj’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year||+3 year|
|Operating Cash Flow (OCF)||€222.20m||€271.40m||€287.34m||€299.13m|
|OCF Growth Year-On-Year||22.14%||5.88%||4.10%|
|OCF Growth From Current Year||29.32%||34.62%|
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Kemira Oyj relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, You should continue to research Kemira Oyj to get a better picture of the company by looking at:
- Valuation: What is KEMIRA 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 KEMIRA is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Kemira Oyj’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.