Mid-caps stocks, like KWS Saat SE (FRA:KWS) with a market capitalization of €2.15b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. 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. See our latest analysis for KWS Saat
How does KWS’s operating cash flow stack up against its debt?
KWS has sustained its debt level by about €239.61m over the last 12 months comprising of short- and long-term debt. At this constant level of debt, KWS currently has €231.94m remaining in cash and short-term investments for investing into the business. On top of this, KWS has produced €122.35m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 51.06%, indicating that KWS’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 KWS’s case, it is able to generate 0.51x cash from its debt capital.
Does KWS’s liquid assets cover its short-term commitments?
At the current liabilities level of €299.34m 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 2.72x. For Food companies, this ratio is within a sensible range 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?
With debt at 38.10% of equity, KWS may be thought of as appropriately levered. KWS is not taking on too much debt commitment, 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 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. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for KWS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research KWS Saat to get a better picture 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 pass 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.