Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Wärtsilä Oyj Abp (HEL:WRT1V), with a market cap of €8.6b, 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. Today we will look at WRT1V’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. Don’t forget that this is a general and concentrated examination of Wärtsilä Oyj Abp’s financial health, so you should conduct further analysis into WRT1V here.
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How much cash does WRT1V generate through its operations?
WRT1V’s debt levels surged from €728m to €875m over the last 12 months , which includes long-term debt. With this growth in debt, WRT1V currently has €221m remaining in cash and short-term investments for investing into the business. On top of this, WRT1V has generated €397m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 45%, meaning that WRT1V’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In WRT1V’s case, it is able to generate 0.45x cash from its debt capital.
Does WRT1V’s liquid assets cover its short-term commitments?
At the current liabilities level of €2.4b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.44x. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does WRT1V face the risk of succumbing to its debt-load?
WRT1V’s level of debt is appropriate relative to its total equity, at 38%. This range is considered safe as WRT1V is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if WRT1V’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 WRT1V, the ratio of 44.92x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as WRT1V’s high interest coverage is seen as responsible and safe practice.
WRT1V has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure WRT1V has company-specific issues impacting its capital structure decisions. You should continue to research Wärtsilä Oyj Abp to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WRT1V’s future growth? Take a look at our free research report of analyst consensus for WRT1V’s outlook.
- Valuation: What is WRT1V 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 WRT1V 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.