Yahoo Finance Are KWS Saat SE's (FRA:KWS) Interest Costs Too High?
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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like KWS Saat SE (FRA:KWS), with a market cap of €2.0b, are often out of the spotlight. 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 KWS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into KWS here.
View our latest analysis for KWS Saat
KWS’s Debt (And Cash Flows)
Over the past year, KWS has reduced its debt from €345m to €325m , which also accounts for long term debt. With this reduction in debt, KWS currently has €187m remaining in cash and short-term investments to keep the business going. On top of this, KWS has produced €155m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 48%, meaning that KWS’s operating cash is sufficient to cover its debt.
Can KWS pay its short-term liabilities?
At the current liabilities level of €470m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.82x. The current ratio is the number you get when you divide current assets by current liabilities. 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.
Can KWS service its debt comfortably?
With debt reaching 41% of equity, KWS may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if KWS’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 KWS, the ratio of 19.81x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as KWS’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although KWS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. 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 KWS has been performing in the past. I suggest you continue to research KWS Saat to get a better picture of the mid-cap 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.
