Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Public Joint Stock Company Uralkali (MCX:URKA), with a market capitalization of RUруб142.10b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at URKA’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Uralkali’s financial health, so you should conduct further analysis into URKA here. See our latest analysis for Uralkali
How does URKA’s operating cash flow stack up against its debt?
URKA has shrunken its total debt levels in the last twelve months, from RUруб7.28b to RUруб6.57b – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at RUруб1.09b , ready to deploy into the business. On top of this, URKA has produced RUруб710.50m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 10.82%, meaning that URKA’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In URKA’s case, it is able to generate 0.11x cash from its debt capital.
Does URKA’s liquid assets cover its short-term commitments?
With current liabilities at RUруб2.36b, it appears that the company has not been able to meet these commitments with a current assets level of RUруб2.13b, leading to a 0.9x current account ratio. which is under the appropriate industry ratio of 3x.
Can URKA service its debt comfortably?
URKA is a highly-leveraged company with debt exceeding equity by over 100%. 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 URKA’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 URKA, the ratio of 5.19x 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.
URKA’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure URKA has company-specific issues impacting its capital structure decisions. You should continue to research Uralkali to get a better picture of the stock by looking at:
- Valuation: What is URKA 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 URKA is currently mispriced by the market.
- Historical Performance: What has URKA’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.