Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Aperam S.A. (AMS:APAM), with a market cap of €1.8b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. APAM’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 APAM here.
How much cash does APAM generate through its operations?
APAM has shrunken its total debt levels in the last twelve months, from €305m to €233m – this includes long-term debt. With this debt repayment, APAM’s cash and short-term investments stands at €169m for investing into the business. Moreover, APAM has produced cash from operations of €406m in the last twelve months, leading to an operating cash to total debt ratio of 174%, indicating that APAM’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In APAM’s case, it is able to generate 1.74x cash from its debt capital.
Can APAM meet its short-term obligations with the cash in hand?
At the current liabilities level of €517m, it appears that the company has been able to meet these commitments with a current assets level of €1.0b, leading to a 1.94x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can APAM service its debt comfortably?
APAM’s level of debt is low relative to its total equity, at 9.6%. This range is considered safe as APAM is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether APAM is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In APAM’s, case, the ratio of 34.62x suggests that interest is comfortably 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.
APAM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure APAM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Aperam to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for APAM’s future growth? Take a look at our free research report of analyst consensus for APAM’s outlook.
- Valuation: What is APAM 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 APAM 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.