Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as The Star Entertainment Group Limited (ASX:SGR) with a market-capitalization of AU$5.09b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. SGR’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 SGR here.
How much cash does SGR generate through its operations?
SGR has shrunken its total debt levels in the last twelve months, from AU$1.10b to AU$830.9m – this includes both the current and long-term debt. With this debt repayment, SGR’s cash and short-term investments stands at AU$110.3m for investing into the business. On top of this, SGR has generated cash from operations of AU$397.1m during the same period of time, resulting in an operating cash to total debt ratio of 47.8%, indicating that SGR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SGR’s case, it is able to generate 0.48x cash from its debt capital.
Can SGR meet its short-term obligations with the cash in hand?
Looking at SGR’s most recent AU$588.9m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of AU$396.0m, leading to a 0.67x current account ratio. which is under the appropriate industry ratio of 3x.
Can SGR service its debt comfortably?
With debt at 22.0% of equity, SGR may be thought of as appropriately levered. SGR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if SGR’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 SGR, the ratio of 7.55x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving SGR ample headroom to grow its debt facilities.
SGR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how SGR has been performing in the past. You should continue to research Star Entertainment Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SGR’s future growth? Take a look at our free research report of analyst consensus for SGR’s outlook.
- Valuation: What is SGR 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 SGR 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.