Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Public Joint Stock Company Uralkali (MISX:URKA) with a market-capitalization of RUРУБ141.24B, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. URKA’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into URKA here. View our latest analysis for Uralkali
How does URKA’s operating cash flow stack up against its debt?
Over the past year, URKA has reduced its debt from US$7.28B to US$6.57B – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$1.09B , ready to deploy into the business. Moreover, URKA has produced cash from operations of US$710.50M over the same time period, leading to an operating cash to total debt ratio of 10.82%, indicating that URKA’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In URKA’s case, it is able to generate 0.11x cash from its debt capital.
Can URKA pay its short-term liabilities?
At the current liabilities level of US$2.36B liabilities, it appears that the company is not able to meet these obligations given the level of current assets of US$2.13B, with a current ratio of 0.9x below the prudent level of 3x.
Does URKA face the risk of succumbing to its debt-load?
With total debt exceeding equities, URKA is considered a highly levered 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 test if URKA’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For URKA, the ratio of 5.19x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as URKA’s high interest coverage is seen as responsible and safe practice.
With a high level of debt on its balance sheet, URKA could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for URKA to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how URKA has been performing in the past. I recommend you continue to research Uralkali to get a more holistic view of the stock by looking at:
- Valuation: What is URKA 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 URKA is currently mispriced by the market.
- Historical Performance: What has URKA’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.
- 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.