Is Mediclinic International plc’s (LON:MDC) Balance Sheet A Threat To Its Future?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Mediclinic International plc (LSE:MDC), with a market capitalization of UK£4.67B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at MDC’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 MDC here. Check out our latest analysis for Mediclinic International
Does MDC generate an acceptable amount of cash through operations?
MDC has sustained its debt level by about UK£1.94B over the last 12 months comprising of short- and long-term debt. At this stable level of debt, MDC’s cash and short-term investments stands at UK£262.00M , ready to deploy into the business. Additionally, MDC has produced UK£345.00M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 17.79%, signalling that MDC’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In MDC’s case, it is able to generate 0.18x cash from its debt capital.
Can MDC meet its short-term obligations with the cash in hand?
Looking at MDC’s most recent UK£525.00M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.83x. Generally, for Healthcare companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can MDC service its debt comfortably?
With a debt-to-equity ratio of 57.49%, MDC can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since MDC is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
MDC’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how MDC has been performing in the past. I suggest you continue to research Mediclinic International to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MDC’s future growth? Take a look at our free research report of analyst consensus for MDC’s outlook.
Valuation: What is MDC 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 MDC 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.
