Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Securitas AB (STO:SECU B), with a market capitalization of kr57b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at SECU B’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SECU B here.
See our latest analysis for Securitas
SECU B’s Debt (And Cash Flows)
SECU B has built up its total debt levels in the last twelve months, from kr17b to kr18b , which includes long-term debt. With this increase in debt, SECU B currently has kr3.2b remaining in cash and short-term investments to keep the business going. Moreover, SECU B has generated cash from operations of kr3.2b over the same time period, resulting in an operating cash to total debt ratio of 17%, signalling that SECU B’s operating cash is less than its debt.
Can SECU B pay its short-term liabilities?
Looking at SECU B’s kr19b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of kr25b, with a current ratio of 1.32x. The current ratio is the number you get when you divide current assets by current liabilities. For Commercial Services companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SECU B face the risk of succumbing to its debt-load?
With total debt exceeding equity, SECU B is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In SECU B’s case, the ratio of 11.38x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as SECU B’s high interest coverage is seen as responsible and safe practice.
Next Steps:
SECU B’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 SECU B’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how SECU B has been performing in the past. I suggest you continue to research Securitas to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SECU B’s future growth? Take a look at our free research report of analyst consensus for SECU B’s outlook.
- Valuation: What is SECU B 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 SECU B 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.
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