Is Voestalpine AG (VIE:VOE) A Financially Sound Company?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Voestalpine AG (VIE:VOE) with a market-capitalization of €4.6b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at VOE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into VOE here.
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See our latest analysis for Voestalpine
VOE’s Debt (And Cash Flows)
VOE's debt levels have fallen from €4.7b to €4.3b over the last 12 months , which also accounts for long term debt. With this debt payback, VOE currently has €472m remaining in cash and short-term investments to keep the business going. Additionally, VOE has produced cash from operations of €946m over the same time period, resulting in an operating cash to total debt ratio of 22%, meaning that VOE’s debt is appropriately covered by operating cash.
Can VOE pay its short-term liabilities?
At the current liabilities level of €4.3b, it seems that the business has been able to meet these commitments with a current assets level of €6.5b, leading to a 1.51x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does VOE face the risk of succumbing to its debt-load?
With debt reaching 66% of equity, VOE may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if VOE’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 VOE, the ratio of 7.59x suggests that interest is appropriately 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:
Although VOE’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 VOE's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how VOE has been performing in the past. I recommend you continue to research Voestalpine to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for VOE’s future growth? Take a look at our free research report of analyst consensus for VOE’s outlook.
Valuation: What is VOE 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 VOE 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.
