Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like LANXESS Aktiengesellschaft (XTRA:LXS), with a market cap of €6.22B, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at LXS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into LXS here. Check out our latest analysis for LANXESS
Does LXS generate an acceptable amount of cash through operations?
LXS’s debt level has been constant at around €2.88B over the previous year – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at €589.00M for investing into the business. Moreover, LXS has generated €868.00M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 30.19%, signalling that LXS’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In LXS’s case, it is able to generate 0.3x cash from its debt capital.
Can LXS pay its short-term liabilities?
Looking at LXS’s most recent €2.46B liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.61x. Usually, for Chemicals companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does LXS face the risk of succumbing to its debt-load?
With debt reaching 85.08% of equity, LXS may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether LXS 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 LXS’s, case, the ratio of 16.56x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving LXS ample headroom to grow its debt facilities.
LXS’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around LXS’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how LXS has been performing in the past. I suggest you continue to research LANXESS to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LXS’s future growth? Take a look at our free research report of analyst consensus for LXS’s outlook.
- Valuation: What is LXS 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 LXS 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 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.