Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Air Lease Corporation (NYSE:AL), with a market cap of US$4.73B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine AL’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AL here. View our latest analysis for Air Lease
Does AL generate an acceptable amount of cash through operations?
AL has built up its total debt levels in the last twelve months, from US$7.71B to US$8.71B , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$274.80M for investing into the business. Moreover, AL has generated US$1.02B in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 11.71%, indicating that AL’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AL’s case, it is able to generate 0.12x cash from its debt capital.
Can AL pay its short-term liabilities?
Looking at AL’s most recent US$256.78M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.13x. For Trade Distributors companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AL face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, AL is a highly leveraged company. 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 AL 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 AL’s, case, the ratio of 3.04x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as AL’s high interest coverage is seen as responsible and safe practice.
AL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for AL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Air Lease to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for AL’s future growth? Take a look at our free research report of analyst consensus for AL’s outlook.
- 2. Historical Performance: What has AL’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.
- 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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.