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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Portland General Electric Company (NYSE:POR), with a market cap of US$4.4b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at POR’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 POR here.
Does POR produce enough cash relative to debt?
Over the past year, POR has maintained its debt levels at around US$2.5b – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$119m for investing into the business. Additionally, POR has produced cash from operations of US$630m during the same period of time, resulting in an operating cash to total debt ratio of 25%, indicating that POR’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In POR’s case, it is able to generate 0.25x cash from its debt capital.
Does POR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$791m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$643m, with a current ratio of 0.81x.
Can POR service its debt comfortably?
POR is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if POR’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 POR, the ratio of 2.5x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
POR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how POR has been performing in the past. I suggest you continue to research Portland General Electric to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for POR’s future growth? Take a look at our free research report of analyst consensus for POR’s outlook.
- Valuation: What is POR 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 POR 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. On rare occasion, data errors may occur. Thank you for reading.