Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as MedReleaf Corp (TSE:LEAF), with a market capitalization of CA$3.04b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at LEAF’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 LEAF here. View out our latest analysis for MedReleaf
Does LEAF produce enough cash relative to debt?
Over the past year, LEAF has ramped up its debt from CA$9.60m to CA$10.27m , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$215.87m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of LEAF’s operating efficiency ratios such as ROA here.
Can LEAF pay its short-term liabilities?
At the current liabilities level of CA$18.83m liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$274.57m, leading to a 14.58x current account ratio. Though, a ratio greater than 3x may be considered as too high, as LEAF could be holding too much capital in a low-return investment environment.
Is LEAF’s debt level acceptable?
With debt at 3.13% of equity, LEAF may be thought of as having low leverage. LEAF is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with LEAF, and the company has plenty of headroom and ability to raise debt should it need to in the future.
LEAF’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure LEAF has company-specific issues impacting its capital structure decisions. You should continue to research MedReleaf to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LEAF’s future growth? Take a look at our free research report of analyst consensus for LEAF’s outlook.
- Valuation: What is LEAF 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 LEAF 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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