Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Rubis (EPA:RUI), with a market capitalization of €4.7b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. RUI’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 RUI here.
RUI’s Debt (And Cash Flows)
Over the past year, RUI has maintained its debt levels at around €1.4b which accounts for long term debt. At this current level of debt, RUI's cash and short-term investments stands at €756m to keep the business going. Moreover, RUI has generated cash from operations of €325m during the same period of time, leading to an operating cash to total debt ratio of 22%, signalling that RUI’s current level of operating cash is high enough to cover debt.
Can RUI pay its short-term liabilities?
At the current liabilities level of €903m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.93x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Gas Utilities companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can RUI service its debt comfortably?
RUI is a relatively highly levered company with a debt-to-equity of 62%. 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 RUI’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 RUI, the ratio of 19.75x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving RUI ample headroom to grow its debt facilities.
Although RUI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. 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 RUI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Rubis to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RUI’s future growth? Take a look at our free research report of analyst consensus for RUI’s outlook.
- Valuation: What is RUI 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 RUI 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.
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