What does LEG Immobilien AG’s (ETR:LEG) Balance Sheet Tell Us About Its Future?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like LEG Immobilien AG (XTRA:LEG), with a market cap of €5.94B, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at LEG’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. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into LEG here. View our latest analysis for LEG Immobilien
Does LEG generate enough cash through operations?
Over the past year, LEG has ramped up its debt from €3.77B to €4.30B , which is made up of current and long term debt. With this increase in debt, LEG’s cash and short-term investments stands at €285.40M for investing into the business. Moreover, LEG has generated €269.60M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 6.27%, signalling that LEG’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 LEG’s case, it is able to generate 0.063x cash from its debt capital.
Can LEG pay its short-term liabilities?
At the current liabilities level of €920.40M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.41x, which is below the prudent industry ratio of 3x.
Can LEG service its debt comfortably?
LEG is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether LEG 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 LEG’s, case, the ratio of 2.93x 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:
LEG’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I’m sure LEG has company-specific issues impacting its capital structure decisions. You should continue to research LEG Immobilien to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LEG’s future growth? Take a look at our free research report of analyst consensus for LEG’s outlook.
Valuation: What is LEG 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 LEG 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.
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.
