What does EVRAZ plc’s (LON:EVR) Balance Sheet Tell Us About Its Future?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like EVRAZ plc (LSE:EVR), with a market cap of UK£7.07B, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. EVR’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EVR here. View our latest analysis for EVRAZ

Does EVR generate enough cash through operations?

EVR’s debt levels have fallen from US$5.89B to US$5.39B over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, EVR currently has US$1.47B remaining in cash and short-term investments , ready to deploy into the business. Additionally, EVR has generated cash from operations of US$1.96B during the same period of time, resulting in an operating cash to total debt ratio of 36.30%, signalling that EVR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In EVR’s case, it is able to generate 0.36x cash from its debt capital.

Can EVR pay its short-term liabilities?

Looking at EVR’s most recent US$2.12B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$3.83B, leading to a 1.81x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

LSE:EVR Historical Debt May 21st 18
LSE:EVR Historical Debt May 21st 18

Is EVR’s debt level acceptable?

With total debt exceeding equities, EVR 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 test if EVR’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 EVR, the ratio of 5.18x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as EVR’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although EVR’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for EVR’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research EVRAZ to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for EVR’s future growth? Take a look at our free research report of analyst consensus for EVR’s outlook.
  2. Valuation: What is EVR 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 EVR is currently mispriced by the market.
  3. 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.