Mid-caps stocks, like Kojamo Oyj (HEL:KOJAMO) with a market capitalization of €2.2b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at KOJAMO’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KOJAMO here.
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How much cash does KOJAMO generate through its operations?
Over the past year, KOJAMO has ramped up its debt from €2.4b to €2.6b , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €394m for investing into the business. Moreover, KOJAMO has produced cash from operations of €106m in the last twelve months, leading to an operating cash to total debt ratio of 4.1%, indicating that KOJAMO’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KOJAMO’s case, it is able to generate 0.041x cash from its debt capital.
Does KOJAMO’s liquid assets cover its short-term commitments?
Looking at KOJAMO’s €187m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of €411m, leading to a 2.2x current account ratio. Generally, for Real Estate companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is KOJAMO’s debt level acceptable?
KOJAMO 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. We can check to see whether KOJAMO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In KOJAMO’s, case, the ratio of 4.29x suggests that interest is appropriately 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.
Although KOJAMO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around KOJAMO’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 KOJAMO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Kojamo Oyj to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KOJAMO’s future growth? Take a look at our free research report of analyst consensus for KOJAMO’s outlook.
- Valuation: What is KOJAMO 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 KOJAMO 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.
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 email@example.com.