Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Scout24 AG (FRA:G24) with a market-capitalization of €4.0b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. G24’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into G24 here.
How much cash does G24 generate through its operations?
G24 has built up its total debt levels in the last twelve months, from €647m to €857m , which includes long-term debt. With this increase in debt, G24 currently has €62m remaining in cash and short-term investments , ready to deploy into the business. On top of this, G24 has produced €193m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 23%, indicating that G24’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In G24’s case, it is able to generate 0.23x cash from its debt capital.
Can G24 meet its short-term obligations with the cash in hand?
At the current liabilities level of €182m, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.78x.
Can G24 service its debt comfortably?
With a debt-to-equity ratio of 77%, G24 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In G24’s case, the ratio of 25.63x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving G24 ample headroom to grow its debt facilities.
G24’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how G24 has been performing in the past. You should continue to research Scout24 to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for G24’s future growth? Take a look at our free research report of analyst consensus for G24’s outlook.
- Valuation: What is G24 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 G24 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 past 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. For errors that warrant correction please contact the editor at email@example.com.