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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) with a market-capitalization of kr54b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. SCA B’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. Don’t forget that this is a general and concentrated examination of Svenska Cellulosa Aktiebolaget's financial health, so you should conduct further analysis into SCA B here.
SCA B’s Debt (And Cash Flows)
Over the past year, SCA B has ramped up its debt from kr8.3b to kr9.8b , which accounts for long term debt. With this growth in debt, SCA B currently has kr488m remaining in cash and short-term investments , ready to be used for running the business. On top of this, SCA B has produced kr3.6b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 37%, indicating that SCA B’s debt is appropriately covered by operating cash.
Does SCA B’s liquid assets cover its short-term commitments?
Looking at SCA B’s kr8.8b in current liabilities, the company has been able to meet these commitments with a current assets level of kr9.3b, leading to a 1.06x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Forestry companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can SCA B service its debt comfortably?
With a debt-to-equity ratio of 25%, SCA B's debt level may be seen as prudent. SCA B is not taking on too much debt commitment, which may be constraining for future growth. We can test if SCA B’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For SCA B, the ratio of 72.31x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving SCA B ample headroom to grow its debt facilities.
SCA B’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how SCA B has been performing in the past. I recommend you continue to research Svenska Cellulosa Aktiebolaget to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SCA B’s future growth? Take a look at our free research report of analyst consensus for SCA B’s outlook.
- Valuation: What is SCA B 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 SCA B 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 email@example.com. 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.