Is Boliden AB (STO:BOL) As Strong As Its Balance Sheet Indicates?

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Boliden AB (STO:BOL), with a market cap of kr67b, often get neglected by retail investors. 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 BOL’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 Boliden’s financial health, so you should conduct further analysis into BOL here.

View our latest analysis for Boliden

BOL’s Debt (And Cash Flows)

BOL’s debt levels have fallen from kr5.3b to kr3.4b over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at kr2.3b to keep the business going. Moreover, BOL has generated cash from operations of kr12b over the same time period, resulting in an operating cash to total debt ratio of 350%, indicating that BOL’s debt is appropriately covered by operating cash.

Can BOL pay its short-term liabilities?

With current liabilities at kr8.8b, the company has been able to meet these commitments with a current assets level of kr16b, leading to a 1.82x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Metals and Mining 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.

OM:BOL Historical Debt, March 8th 2019
OM:BOL Historical Debt, March 8th 2019

Does BOL face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 8.6%, BOL’s debt level is relatively low. This range is considered safe as BOL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BOL’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 BOL, the ratio of 37.53x suggests that interest is comfortably 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.

Next Steps:

BOL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BOL has been performing in the past. I suggest you continue to research Boliden to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BOL’s future growth? Take a look at our free research report of analyst consensus for BOL’s outlook.
  2. Valuation: What is BOL 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 BOL is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com. 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.