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Has Victrex plc (LON:VCT) Got Enough Cash?

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Victrex plc (LON:VCT), with a market capitalization of UK£2.1b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. VCT’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 VCT here.

See our latest analysis for Victrex

Is VCT’s debt level acceptable?

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Victrex, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with VCT, and the company has plenty of headroom and ability to raise debt should it need to in the future.

LSE:VCT Historical Debt December 4th 18

Does VCT’s liquid assets cover its short-term commitments?

Since Victrex doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of UK£46m, it seems that the business has been able to meet these obligations given the level of current assets of UK£204m, with a current ratio of 4.45x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Next Steps:

VCT has no debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how VCT has performed in the past. You should continue to research Victrex to get a better picture of the stock by looking at:

  1. 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.
  2. 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.
  3. 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 editorial-team@simplywallst.com.