Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Fraport AG (ETR:FRA), with a market cap of €6.3b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. FRA’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 FRA here.
Does FRA produce enough cash relative to debt?
Over the past year, FRA has maintained its debt levels at around €4.7b – this includes both the current and long-term debt. At this current level of debt, FRA’s cash and short-term investments stands at €625m , ready to deploy into the business. Additionally, FRA has generated cash from operations of €710m in the last twelve months, leading to an operating cash to total debt ratio of 15%, meaning that FRA’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FRA’s case, it is able to generate 0.15x cash from its debt capital.
Does FRA’s liquid assets cover its short-term commitments?
Looking at FRA’s most recent €1.7b liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.72x.
Is FRA’s debt level acceptable?
With total debt exceeding equities, FRA is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 FRA’s case, the ratio of 3.74x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
With a high level of debt on its balance sheet, FRA 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 FRA to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I’m sure FRA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Fraport to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FRA’s future growth? Take a look at our free research report of analyst consensus for FRA’s outlook.
- Valuation: What is FRA 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 FRA 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 firstname.lastname@example.org.