Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Vicat SA (EPA:VCT) with a market-capitalization of €1.9b, 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. Today we will look at VCT’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. Don’t forget that this is a general and concentrated examination of Vicat’s financial health, so you should conduct further analysis into VCT here.
Does VCT Produce Much Cash Relative To Its Debt?
VCT's debt level has been constant at around €1.0b over the previous year including long-term debt. At this constant level of debt, VCT's cash and short-term investments stands at €315m to keep the business going. Additionally, VCT has produced cash from operations of €333m in the last twelve months, leading to an operating cash to total debt ratio of 32%, signalling that VCT’s operating cash is sufficient to cover its debt.
Does VCT’s liquid assets cover its short-term commitments?
Looking at VCT’s €783m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.65x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Basic Materials companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can VCT service its debt comfortably?
VCT is a relatively highly levered company with a debt-to-equity of 41%. 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 VCT's case, the ratio of 12.16x 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.
Although VCT’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 VCT's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure VCT has company-specific issues impacting its capital structure decisions. You should continue to research Vicat to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VCT’s future growth? Take a look at our free research report of analyst consensus for VCT’s outlook.
- Valuation: What is VCT 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 VCT 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.
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.