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 (WBAG:VOE) with a market-capitalization of €7.88B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. VOE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into VOE here. View our latest analysis for Voestalpine
Does VOE generate enough cash through operations?
Over the past year, VOE has maintained its debt levels at around €4.11B comprising of short- and long-term debt. At this current level of debt, VOE currently has €851.60M remaining in cash and short-term investments , ready to deploy into the business. Moreover, VOE has generated €1.15B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 28.01%, meaning that VOE’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 VOE’s case, it is able to generate 0.28x cash from its debt capital.
Can VOE meet its short-term obligations with the cash in hand?
At the current liabilities level of €4.46B liabilities, the company has been able to meet these commitments with a current assets level of €5.97B, leading to a 1.34x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does VOE face the risk of succumbing to its debt-load?
VOE is a relatively highly levered company with a debt-to-equity of 74.72%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 8.17x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving VOE ample headroom to grow its debt facilities.
Next Steps:
VOE’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how VOE has been performing in the past. You should 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.
To help readers see pass 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.
