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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as LendLease Group (ASX:LLC), with a market capitalization of AU$7.3b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine LLC’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 LLC here.
LLC’s Debt (And Cash Flows)
LLC's debt levels surged from AU$1.8b to AU$3.4b over the last 12 months , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at AU$1.1b , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can take a look at some of LLC’s operating efficiency ratios such as ROA here.
Does LLC’s liquid assets cover its short-term commitments?
Looking at LLC’s AU$6.2b in current liabilities, the company has been able to meet these obligations given the level of current assets of AU$6.3b, with a current ratio of 1.02x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Real Estate companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does LLC face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 55%, LLC can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
LLC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure LLC has company-specific issues impacting its capital structure decisions. I suggest you continue to research LendLease Group to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LLC’s future growth? Take a look at our free research report of analyst consensus for LLC’s outlook.
- Valuation: What is LLC 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 LLC 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.