Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as NMC Health Plc (LON:NMC), with a market cap of UK£7.37b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at NMC’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 NMC here. Check out our latest analysis for NMC Health
How much cash does NMC generate through its operations?
NMC has built up its total debt levels in the last twelve months, from UK£1.05b to UK£0 , which is made up of current and long term debt. With this growth in debt, NMC currently has UK£387.61m remaining in cash and short-term investments for investing into the business. Additionally, NMC has generated UK£277.51m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 19.84%, signalling that NMC’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NMC’s case, it is able to generate 0.2x cash from its debt capital.
Can NMC pay its short-term liabilities?
With current liabilities at UK£703.76m, the company has been able to meet these obligations given the level of current assets of UK£1.13b, with a current ratio of 1.6x. Usually, for Healthcare 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.
Does NMC face the risk of succumbing to its debt-load?
With total debt exceeding equities, NMC is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether NMC 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 NMC’s, case, the ratio of 4.88x 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.
At its current level of cash flow coverage, NMC has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure NMC has company-specific issues impacting its capital structure decisions. You should continue to research NMC Health to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NMC’s future growth? Take a look at our free research report of analyst consensus for NMC’s outlook.
- Valuation: What is NMC 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 NMC 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.