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Public Joint Stock Company ALROSA (MCX:ALRS), a large-cap worth RUруб686b, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to extending previous success is in the health of the company’s financials. I will provide an overview of ALROSA’s financial liquidity and leverage to give you an idea of ALROSA’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into ALRS here.
ALRS’s Debt (And Cash Flows)
Over the past year, ALRS has ramped up its debt from RUруб93b to RUруб107b , which includes long-term debt. With this rise in debt, ALRS currently has RUруб39b remaining in cash and short-term investments , ready to be used for running the business. On top of this, ALRS has produced RUруб120b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 113%, signalling that ALRS’s current level of operating cash is high enough to cover debt.
Can ALRS meet its short-term obligations with the cash in hand?
With current liabilities at RUруб75b, the company has been able to meet these commitments with a current assets level of RUруб155b, leading to a 2.07x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does ALRS face the risk of succumbing to its debt-load?
With debt reaching 43% of equity, ALRS may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. The sustainability of ALRS’s debt levels can be assessed by comparing the company’s interest payments to earnings. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For ALRS, the ratio of 28.34x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like ALRS are considered a risk-averse investment.
Although ALRS’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. Since there is also no concerns around ALRS's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how ALRS has been performing in the past. I suggest you continue to research ALROSA to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALRS’s future growth? Take a look at our free research report of analyst consensus for ALRS’s outlook.
- Valuation: What is ALRS 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 ALRS 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 firstname.lastname@example.org. 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.