Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Public Stock Company VSMPO-AVISMA Corporation (MCX:VSMO), with a market cap of RUруб188.88b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at VSMO’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into VSMO here. Check out our latest analysis for Public Stock Company VSMPO-AVISMA
How does VSMO’s operating cash flow stack up against its debt?
VSMO has built up its total debt levels in the last twelve months, from RUруб62.49b to RUруб80.68b , which is made up of current and long term debt. With this rise in debt, VSMO currently has RUруб52.71b remaining in cash and short-term investments for investing into the business. Moreover, VSMO has produced RUруб30.68b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 38.03%, indicating that VSMO’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 VSMO’s case, it is able to generate 0.38x cash from its debt capital.
Does VSMO’s liquid assets cover its short-term commitments?
Looking at VSMO’s most recent RUруб27.06b liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.84x. However, a ratio greater than 3x may be considered as too high, as VSMO could be holding too much capital in a low-return investment environment.
Does VSMO face the risk of succumbing to its debt-load?
With debt reaching 46.52% of equity, VSMO 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 test if VSMO’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 VSMO, the ratio of 155x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as VSMO’s high interest coverage is seen as responsible and safe practice.
VSMO’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. Since there is also no concerns around VSMO’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for VSMO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Public Stock Company VSMPO-AVISMA to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VSMO’s future growth? Take a look at our free research report of analyst consensus for VSMO’s outlook.
- Valuation: What is VSMO 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 VSMO 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.