Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Wallenstam AB (publ) (STO:WALL B), with a market capitalization of kr29b, 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. This article will examine WALL B’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WALL B here.
Does WALL B Produce Much Cash Relative To Its Debt?
WALL B’s debt levels surged from kr19b to kr21b over the last 12 months – this includes long-term debt. With this rise in debt, WALL B currently has kr83m remaining in cash and short-term investments to keep the business going. Moreover, WALL B has generated kr370m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 1.7%, indicating that WALL B’s operating cash is less than its debt.
Does WALL B’s liquid assets cover its short-term commitments?
Looking at WALL B’s kr13b in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of kr688m, with a current ratio of 0.052x. The current ratio is the number you get when you divide current assets by current liabilities.
Is WALL B’s debt level acceptable?
With debt reaching 99% of equity, WALL B 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. 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 WALL B’s case, the ratio of 5.68x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as WALL B’s high interest coverage is seen as responsible and safe practice.
Although WALL B’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for WALL B’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Wallenstam to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WALL B’s future growth? Take a look at our free research report of analyst consensus for WALL B’s outlook.
- Valuation: What is WALL 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 WALL 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.
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 email@example.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.