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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Securitas AB (STO:SECU B), with a market cap of kr53b, 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. SECU B’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 SECU B here.
SECU B’s Debt (And Cash Flows)
Over the past year, SECU B has ramped up its debt from kr17b to kr18b , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at kr3.2b , ready to be used for running the business. On top of this, SECU B has produced cash from operations of kr3.2b in the last twelve months, resulting in an operating cash to total debt ratio of 17%, meaning that SECU B’s current level of operating cash is not high enough to cover debt.
Can SECU B pay its short-term liabilities?
At the current liabilities level of kr19b, the company has been able to meet these obligations given the level of current assets of kr25b, with a current ratio of 1.32x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Commercial Services companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can SECU B service its debt comfortably?
With total debt exceeding equity, SECU B is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In SECU B's case, the ratio of 11.38x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving SECU B ample headroom to grow its debt facilities.
Although SECU B’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. Since there is also no concerns around SECU B's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SECU B's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Securitas to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SECU B’s future growth? Take a look at our free research report of analyst consensus for SECU B’s outlook.
- Valuation: What is SECU B 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 SECU B 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 firstname.lastname@example.org. 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.