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 Elis SA (EPA:ELIS), with a market capitalization of €3.0b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine ELIS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Elis’s financial health, so you should conduct further analysis into ELIS here.
How much cash does ELIS generate through its operations?
ELIS has built up its total debt levels in the last twelve months, from €1.9b to €3.8b – this includes long-term debt. With this increase in debt, ELIS’s cash and short-term investments stands at €383m for investing into the business. Additionally, ELIS has produced cash from operations of €610m during the same period of time, leading to an operating cash to total debt ratio of 16%, indicating that ELIS’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ELIS’s case, it is able to generate 0.16x cash from its debt capital.
Can ELIS meet its short-term obligations with the cash in hand?
At the current liabilities level of €1.4b, the company may not be able to easily meet these obligations given the level of current assets of €1.3b, with a current ratio of 0.93x.
Is ELIS’s debt level acceptable?
ELIS is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 ELIS’s case, the ratio of 3x 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.
ELIS’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for ELIS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Elis to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ELIS’s future growth? Take a look at our free research report of analyst consensus for ELIS’s outlook.
- Valuation: What is ELIS 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 ELIS 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.
Daniel Loeb has achieved 16.2% annualized returns over the last 20 years. What is he holding today?
Founder of the event-driven, value-oriented hedge fund Third Point, Daniel Loeb is one of the most successful activist investors on the market today. Explore his portfolio’s top holdings, see how he diversifies his investments, past performance and growth estimates. Click here to view a FREE detailed infographic analysis of Daniel Loeb’s investment portfolio.