Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as OCI NV. (ENXTAM:OCI) with a market-capitalization of €3.81B, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine OCI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into OCI here. See our latest analysis for OCI
How does OCI’s operating cash flow stack up against its debt?
OCI has sustained its debt level by about US$4.68B over the last 12 months made up of current and long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$231.00M for investing into the business. Additionally, OCI has generated US$181.70M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 3.88%, signalling that OCI’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In OCI’s case, it is able to generate 0.039x cash from its debt capital.
Can OCI meet its short-term obligations with the cash in hand?
At the current liabilities level of US$1.60B liabilities, the company is not able to meet these obligations given the level of current assets of US$739.00M, with a current ratio of 0.46x below the prudent level of 3x.
Can OCI service its debt comfortably?
Since total debt levels have outpaced equities, OCI is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since OCI is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
OCI’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I’m sure OCI has company-specific issues impacting its capital structure decisions. I recommend you continue to research OCI to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OCI’s future growth? Take a look at our free research report of analyst consensus for OCI’s outlook.
- Valuation: What is OCI 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 OCI 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.