Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as KWS Saat SE (FRA:KWS) with a market-capitalization of €1.9b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine KWS’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KWS here.
Does KWS produce enough cash relative to debt?
KWS’s debt levels surged from €296m to €341m over the last 12 months – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €201m for investing into the business. Additionally, KWS has generated cash from operations of €69m during the same period of time, resulting in an operating cash to total debt ratio of 20%, indicating that KWS’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 KWS’s case, it is able to generate 0.2x cash from its debt capital.
Does KWS’s liquid assets cover its short-term commitments?
With current liabilities at €545m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2x. Usually, for Food companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does KWS face the risk of succumbing to its debt-load?
KWS’s level of debt is appropriate relative to its total equity, at 38%. This range is considered safe as KWS is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether KWS 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 KWS’s, case, the ratio of 21.98x suggests that interest is comfortably 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.
KWS’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how KWS has been performing in the past. You should continue to research KWS Saat to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KWS’s future growth? Take a look at our free research report of analyst consensus for KWS’s outlook.
- Valuation: What is KWS 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 KWS 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 email@example.com.