Has RHÖN-KLINIKUM Aktiengesellschaft (FRA:RHK) Got Enough Cash?
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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as RHÖN-KLINIKUM Aktiengesellschaft (FRA:RHK) with a market-capitalization of €1.8b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. RHK’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into RHK here.
See our latest analysis for RHÖN-KLINIKUM
Does RHK Produce Much Cash Relative To Its Debt?
RHK's debt levels surged from €3.7m to €114m over the last 12 months , which includes long-term debt. With this rise in debt, RHK currently has €255m remaining in cash and short-term investments to keep the business going. Moreover, RHK has generated €46m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 40%, indicating that RHK’s operating cash is sufficient to cover its debt.
Can RHK meet its short-term obligations with the cash in hand?
Looking at RHK’s €308m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €540m, with a current ratio of 1.76x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Healthcare companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does RHK face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 9.0%, RHK's debt level is relatively low. This range is considered safe as RHK is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether RHK 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 RHK's, case, the ratio of 26.72x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
RHK has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how RHK has been performing in the past. I recommend you continue to research RHÖN-KLINIKUM to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RHK’s future growth? Take a look at our free research report of analyst consensus for RHK’s outlook.
Valuation: What is RHK 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 RHK 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.
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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.
