Yahoo Finance Is Hera S.p.A.'s (BIT:HER) Balance Sheet A Threat To Its Future?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Hera S.p.A. (BIT:HER), with a market capitalization of €4.8b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine HER’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into HER here.
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See our latest analysis for Hera
HER’s Debt (And Cash Flows)
HER's debt levels surged from €3.2b to €3.5b over the last 12 months – this includes long-term debt. With this rise in debt, HER's cash and short-term investments stands at €713m to keep the business going. Additionally, HER has produced cash from operations of €667m in the last twelve months, resulting in an operating cash to total debt ratio of 19%, signalling that HER’s debt is not covered by operating cash.
Can HER meet its short-term obligations with the cash in hand?
Looking at HER’s €3.2b 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 1.08x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Integrated Utilities companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can HER service its debt comfortably?
HER 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 HER's case, the ratio of 6.82x 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.
Next Steps:
HER’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 HER has been performing in the past. I suggest you continue to research Hera to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for HER’s future growth? Take a look at our free research report of analyst consensus for HER’s outlook.
Valuation: What is HER 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 HER 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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