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Is Orion Oyj (HEL:ORNBV) As Strong As Its Balance Sheet Indicates?

Simply Wall St

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Orion Oyj (HEL:ORNBV), with a market cap of €4.3b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at ORNBV’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ORNBV here.

Check out our latest analysis for Orion Oyj

Does ORNBV Produce Much Cash Relative To Its Debt?

Over the past year, ORNBV has reduced its debt from €151m to €38m – this includes long-term debt. With this debt payback, ORNBV's cash and short-term investments stands at €27m to keep the business going. On top of this, ORNBV has produced cash from operations of €223m in the last twelve months, leading to an operating cash to total debt ratio of 587%, indicating that ORNBV’s operating cash is sufficient to cover its debt.

Can ORNBV pay its short-term liabilities?

Looking at ORNBV’s €196m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of €483m, leading to a 2.46x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Pharmaceuticals companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

HLSE:ORNBV Historical Debt, July 22nd 2019

Can ORNBV service its debt comfortably?

With debt at 5.9% of equity, ORNBV may be thought of as having low leverage. This range is considered safe as ORNBV is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether ORNBV 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 ORNBV's, case, the ratio of 58.08x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ORNBV’s high interest coverage is seen as responsible and safe practice.

Next Steps:

ORNBV’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ORNBV's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Orion Oyj to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ORNBV’s future growth? Take a look at our free research report of analyst consensus for ORNBV’s outlook.
  2. Valuation: What is ORNBV 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 ORNBV is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.