Yahoo Finance Has Royal Mail plc (LON:RMG) Got Enough Cash?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Royal Mail plc (LON:RMG), with a market cap of UK£5.02b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at RMG’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into RMG here. View out our latest analysis for Royal Mail
How much cash does RMG generate through its operations?
RMG has shrunken its total debt levels in the last twelve months, from UK£657.00m to UK£606.00m – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at UK£600.00m for investing into the business. Additionally, RMG has produced UK£905.00m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 149.34%, meaning that RMG’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 RMG’s case, it is able to generate 1.49x cash from its debt capital.
Can RMG meet its short-term obligations with the cash in hand?
With current liabilities at UK£2.08b, it appears that the company has not been able to meet these commitments with a current assets level of UK£1.85b, leading to a 0.89x current account ratio. which is under the appropriate industry ratio of 3x.
Is RMG’s debt level acceptable?
RMG’s level of debt is appropriate relative to its total equity, at 13.66%. RMG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether RMG 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 RMG’s, case, the ratio of 22.21x 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.
Next Steps:
RMG’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially when liquidity may also be an issue. Keep in mind I haven’t considered other factors such as how RMG has been performing in the past. I recommend you continue to research Royal Mail to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RMG’s future growth? Take a look at our free research report of analyst consensus for RMG’s outlook.
Valuation: What is RMG 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 RMG 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.
