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Mid-caps stocks, like Aker BP ASA (OB:AKERBP) with a market capitalization of øre85b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. AKERBP’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 AKERBP here.
AKERBP’s Debt (And Cash Flows)
AKERBP has shrunk its total debt levels in the last twelve months, from US$3.1b to US$2.6b , which also accounts for long term debt. With this debt payback, AKERBP’s cash and short-term investments stands at US$114m , ready to be used for running the business. Moreover, AKERBP has generated US$3.8b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 145%, indicating that AKERBP’s current level of operating cash is high enough to cover debt.
Does AKERBP’s liquid assets cover its short-term commitments?
Looking at AKERBP’s US$1.4b in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$619m, leading to a current ratio of 0.43x. The current ratio is calculated by dividing current assets by current liabilities.
Does AKERBP face the risk of succumbing to its debt-load?
With debt reaching 94% of equity, AKERBP may be thought of as relatively highly levered. 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 AKERBP 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 AKERBP’s, case, the ratio of 22.52x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as AKERBP’s high interest coverage is seen as responsible and safe practice.
AKERBP’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, 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 AKERBP has been performing in the past. You should continue to research Aker BP to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AKERBP’s future growth? Take a look at our free research report of analyst consensus for AKERBP’s outlook.
- Valuation: What is AKERBP 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 AKERBP 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.