Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Public Stock Company VSMPO-AVISMA Corporation (MISX:VSMO) with a market-capitalization of RUРУБ199.25B, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. 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. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into VSMO here. Check out our latest analysis for Public Stock Company VSMPO-AVISMA
Does VSMO generate an acceptable amount of cash through operations?
VSMO has shrunken its total debt levels in the last twelve months, from RUРУБ80.89B to RUРУБ62.49B , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at RUРУБ40.08B , ready to deploy into the business. Additionally, VSMO has generated cash from operations of RUРУБ35.74B in the last twelve months, leading to an operating cash to total debt ratio of 57.19%, meaning that VSMO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In VSMO’s case, it is able to generate 0.57x cash from its debt capital.
Can VSMO meet its short-term obligations with the cash in hand?
With current liabilities at RUРУБ38.47B, it seems that the business has been able to meet these obligations given the level of current assets of RUРУБ98.91B, with a current ratio of 2.57x. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does VSMO face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 50.53%, VSMO can be considered as an above-average leveraged company. 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 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 60.55x 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.
Next Steps:
Although VSMO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how VSMO has been performing in the past. I recommend you continue to research Public Stock Company VSMPO-AVISMA to get a more holistic view of the mid-cap by looking at:
- 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.
- Historical Performance: What has VSMO’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.