Yahoo Finance Is The Berkeley Group Holdings plc (LON:BKG) As Strong As Its Balance Sheet Indicates?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as The Berkeley Group Holdings plc (LON:BKG), with a market capitalization of UK£5.1b, rarely draw their attention from the investing community. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at BKG’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into BKG here.
Check out our latest analysis for Berkeley Group Holdings
Does BKG produce enough cash relative to debt?
Over the past year, BKG has maintained its debt levels at around UK£300m – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at UK£1.2b for investing into the business. Moreover, BKG has generated UK£628m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 209%, meaning that BKG’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BKG’s case, it is able to generate 2.09x cash from its debt capital.
Does BKG’s liquid assets cover its short-term commitments?
Looking at BKG’s UK£1.7b in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.6x. Generally, for Consumer Durables companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does BKG face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 11%, BKG’s debt level may be seen as prudent. BKG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether BKG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BKG’s, case, the ratio of 176x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BKG ample headroom to grow its debt facilities.
Next Steps:
BKG’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BKG has been performing in the past. I recommend you continue to research Berkeley Group Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BKG’s future growth? Take a look at our free research report of analyst consensus for BKG’s outlook.
Valuation: What is BKG 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 BKG 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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