Yahoo Finance Kingfisher plc (LON:KGF): Financial Strength Analysis
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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Kingfisher plc (LON:KGF) with a market-capitalization of UK£4.4b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine KGF’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 Kingfisher's financial health, so you should conduct further analysis into KGF here.
See our latest analysis for Kingfisher
Does KGF Produce Much Cash Relative To Its Debt?
Over the past year, KGF has maintained its debt levels at around UK£178m – this includes long-term debt. At this constant level of debt, KGF currently has UK£229m remaining in cash and short-term investments to keep the business going. Moreover, KGF has generated cash from operations of UK£649m over the same time period, resulting in an operating cash to total debt ratio of 365%, indicating that KGF’s current level of operating cash is high enough to cover debt.
Does KGF’s liquid assets cover its short-term commitments?
Looking at KGF’s UK£2.6b in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of UK£3.4b, with a current ratio of 1.28x. The current ratio is calculated by dividing current assets by current liabilities. For Specialty Retail companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does KGF face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 2.7%, KGF's debt level is relatively low. KGF is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether KGF 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 KGF's, case, the ratio of 21.7x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving KGF ample headroom to grow its debt facilities.
Next Steps:
KGF’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. This is only a rough assessment of financial health, and I'm sure KGF has company-specific issues impacting its capital structure decisions. I recommend you continue to research Kingfisher to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KGF’s future growth? Take a look at our free research report of analyst consensus for KGF’s outlook.
Valuation: What is KGF 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 KGF 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.