Is LendLease Group (ASX:LLC) A Financially Strong Company?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like LendLease Group (ASX:LLC), with a market cap of AU$10.0b, 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. Today we will look at LLC’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 LLC here.
View our latest analysis for LendLease Group
How does LLC’s operating cash flow stack up against its debt?
Over the past year, LLC has ramped up its debt from AU$2.2b to AU$2.4b , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at AU$1.2b , ready to deploy into the business. On top of this, LLC has produced AU$73m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 3.1%, meaning that LLC’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In LLC’s case, it is able to generate 0.031x cash from its debt capital.
Can LLC pay its short-term liabilities?
With current liabilities at AU$6.6b, it appears that the company may not be able to easily meet these obligations given the level of current assets of AU$6.3b, with a current ratio of 0.96x.
Does LLC face the risk of succumbing to its debt-load?
LLC’s level of debt is appropriate relative to its total equity, at 37%. This range is considered safe as LLC is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether LLC 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 LLC’s, case, the ratio of 8.31x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as LLC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although LLC’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for LLC’s financial health. Other important fundamentals need to be considered alongside. You should continue to research LendLease Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LLC’s future growth? Take a look at our free research report of analyst consensus for LLC’s outlook.
Valuation: What is LLC 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 LLC 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 editorial-team@simplywallst.com.
