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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Motor Oil (Hellas) Corinth Refineries S.A. (ATH:MOH) with a market-capitalization of €2.2b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at MOH’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 Motor Oil (Hellas) Corinth Refineries’s financial health, so you should conduct further analysis into MOH here.
MOH’s Debt (And Cash Flows)
MOH has shrunk its total debt levels in the last twelve months, from €994m to €930m , which also accounts for long term debt. With this reduction in debt, MOH currently has €679m remaining in cash and short-term investments , ready to be used for running the business. Moreover, MOH has produced €326m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 35%, signalling that MOH’s current level of operating cash is high enough to cover debt.
Can MOH meet its short-term obligations with the cash in hand?
Looking at MOH’s €834m in current liabilities, the company has been able to meet these obligations given the level of current assets of €1.7b, with a current ratio of 1.98x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Oil and Gas 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.
Is MOH’s debt level acceptable?
With debt reaching 84% of equity, MOH may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether MOH 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 MOH's, case, the ratio of 9.56x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MOH’s high interest coverage is seen as responsible and safe practice.
Although MOH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how MOH has been performing in the past. I recommend you continue to research Motor Oil (Hellas) Corinth Refineries to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MOH’s future growth? Take a look at our free research report of analyst consensus for MOH’s outlook.
- Valuation: What is MOH 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 MOH 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 firstname.lastname@example.org. 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.