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Stocks with market capitalization between $2B and $10B, such as The Navigator Company, S.A. (ELI:NVG) with a size of €2.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at NVG’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 NVG here.
Does NVG Produce Much Cash Relative To Its Debt?
Over the past year, NVG has ramped up its debt from €771m to €908m – this includes long-term debt. With this rise in debt, NVG currently has €176m remaining in cash and short-term investments to keep the business going. Additionally, NVG has generated cash from operations of €239m during the same period of time, leading to an operating cash to total debt ratio of 26%, signalling that NVG’s current level of operating cash is high enough to cover debt.
Can NVG meet its short-term obligations with the cash in hand?
Looking at NVG’s €439m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.78x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Forestry companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can NVG service its debt comfortably?
With a debt-to-equity ratio of 74%, NVG 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. We can check to see whether NVG 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 NVG's, case, the ratio of 34.46x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving NVG ample headroom to grow its debt facilities.
Although NVG’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. This is only a rough assessment of financial health, and I'm sure NVG has company-specific issues impacting its capital structure decisions. I recommend you continue to research Navigator Company to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NVG’s future growth? Take a look at our free research report of analyst consensus for NVG’s outlook.
- Valuation: What is NVG 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 NVG 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 email@example.com. 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.