Yahoo Finance Cobham plc (LON:COB): Financial Strength Analysis
Mid-caps stocks, like Cobham plc (LON:COB) with a market capitalization of UK£2.96b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at COB’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into COB here.
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How does COB’s operating cash flow stack up against its debt?
COB has shrunken its total debt levels in the last twelve months, from UK£943.3m to UK£387.3m , which is made up of current and long term debt. With this reduction in debt, COB currently has UK£333.7m remaining in cash and short-term investments , ready to deploy into the business. Moreover, COB has produced cash from operations of UK£154.3m over the same time period, leading to an operating cash to total debt ratio of 39.8%, meaning that COB’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 COB’s case, it is able to generate 0.4x cash from its debt capital.
Does COB’s liquid assets cover its short-term commitments?
At the current liabilities level of UK£734.8m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.45x. Usually, for Aerospace & Defense companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is COB’s debt level acceptable?
With debt at 31.0% of equity, COB may be thought of as appropriately levered. COB is not taking on too much debt commitment, which may be constraining for future growth. We can test if COB’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 COB, the ratio of 3.13x 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.
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COB’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for COB’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Cobham to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for COB’s future growth? Take a look at our free research report of analyst consensus for COB’s outlook.
Valuation: What is COB 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 COB 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 editorial-team@simplywallst.com.