Mid-caps stocks, like First Capital Realty Inc (TSX:FCR) with a market capitalization of CA$4.95B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at FCR’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into FCR here. Check out our latest analysis for First Capital Realty
How does FCR’s operating cash flow stack up against its debt?
FCR’s debt levels surged from CA$4.02B to CA$4.31B over the last 12 months – this includes both the current and long-term debt. With this growth in debt, FCR’s cash and short-term investments stands at CA$33.23M , ready to deploy into the business. Moreover, FCR has generated cash from operations of CA$270.16M during the same period of time, resulting in an operating cash to total debt ratio of 6.27%, meaning that FCR’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 FCR’s case, it is able to generate 0.063x cash from its debt capital.
Can FCR pay its short-term liabilities?
Looking at FCR’s most recent CA$572.58M liabilities, it appears that the company is not able to meet these obligations given the level of current assets of CA$302.90M, with a current ratio of 0.53x below the prudent level of 3x.
Is FCR’s debt level acceptable?
With debt reaching 91.76% of equity, FCR 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 test if FCR’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 FCR, the ratio of 3x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as FCR’s high interest coverage is seen as responsible and safe practice.
FCR’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure FCR has company-specific issues impacting its capital structure decisions. You should continue to research First Capital Realty to get a more holistic view of the stock by looking at:
- Valuation: What is FCR 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 FCR is currently mispriced by the market.
- Historical Performance: What has FCR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.