What does PQ Group Holdings Inc's (NYSE:PQG) Balance Sheet Tell Us About Its Future?

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as PQ Group Holdings Inc (NYSE:PQG) with a market-capitalization of US$2.43b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at PQG’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 PQG here.

View our latest analysis for PQ Group Holdings

How does PQG’s operating cash flow stack up against its debt?

Over the past year, PQG has reduced its debt from US$2.58b to US$2.25b – this includes both the current and long-term debt. With this debt repayment, PQG's cash and short-term investments stands at US$59.87m , ready to deploy into the business. Additionally, PQG has produced US$131.40m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 5.85%, indicating that PQG’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PQG’s case, it is able to generate 0.058x cash from its debt capital.

Can PQG pay its short-term liabilities?

With current liabilities at US$290.67m, it seems that the business has been able to meet these obligations given the level of current assets of US$589.64m, with a current ratio of 2.03x. For Chemicals companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is PQG’s debt level acceptable?

PQG is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether PQG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PQG's, case, the ratio of 1.08x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

At its current level of cash flow coverage, PQG has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how PQG has been performing in the past. I recommend you continue to research PQ Group Holdings to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for PQG’s future growth? Take a look at our free research report of analyst consensus for PQG’s outlook.
2. Valuation: What is PQG 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 PQG 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.