Mid-caps stocks, like OCI NV (AMS:OCI) with a market capitalization of €5.12b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. OCI’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into OCI here. See our latest analysis for OCI
How much cash does OCI generate through its operations?
OCI has sustained its debt level by about €4.68b over the last 12 months comprising of short- and long-term debt. At this constant level of debt, OCI currently has €231.00m remaining in cash and short-term investments for investing into the business. On top of this, OCI has produced cash from operations of €181.70m in the last twelve months, resulting in an operating cash to total debt ratio of 3.88%, signalling that OCI’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses 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.
Does OCI’s liquid assets cover its short-term commitments?
At the current liabilities level of €1.60b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.46x, which is below the prudent industry ratio 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. But 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 lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how OCI has been performing in the past. I suggest 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.