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What Investors Should Know About Calpine Corporation’s (NYSE:CPN) Financial Strength

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Mid-caps stocks, like Calpine Corporation (NYSE:CPN) with a market capitalization of US$5.43B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at CPN’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into CPN here. View our latest analysis for Calpine

Does CPN generate enough cash through operations?

Over the past year, CPN has maintained its debt levels at around US$12.24B comprising of short- and long-term debt. At this stable level of debt, CPN’s cash and short-term investments stands at US$419.00M for investing into the business. Moreover, CPN has generated cash from operations of US$1.03B during the same period of time, resulting in an operating cash to total debt ratio of 8.42%, signalling that CPN’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In CPN’s case, it is able to generate 0.084x cash from its debt capital.

Does CPN’s liquid assets cover its short-term commitments?

Looking at CPN’s most recent US$3.70B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$4.43B, leading to a 1.2x current account ratio. Usually, for Renewable Energy companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NYSE:CPN Historical Debt Feb 14th 18
NYSE:CPN Historical Debt Feb 14th 18

Can CPN service its debt comfortably?

CPN is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CPN is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

At its current level of cash flow coverage, CPN has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CPN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Calpine to get a more holistic view of the stock by looking at:


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.