Yahoo Finance Is Copa Holdings SA (NYSE:CPA) A Financially Sound Company?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Copa Holdings SA (NYSE:CPA) with a market-capitalization of US$3.3b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at CPA’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into CPA here.
View our latest analysis for Copa Holdings
How does CPA’s operating cash flow stack up against its debt?
Over the past year, CPA has maintained its debt levels at around US$1.2b comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$830m , ready to deploy into the business. Moreover, CPA has produced US$664m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 57%, indicating that CPA’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CPA’s case, it is able to generate 0.57x cash from its debt capital.
Does CPA’s liquid assets cover its short-term commitments?
With current liabilities at US$1.1b, it appears that the company has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 1.04x. For Airlines 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.
Is CPA’s debt level acceptable?
With debt reaching 52% of equity, CPA may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether CPA 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 CPA’s, case, the ratio of 32.41x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as CPA’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although CPA’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. This is only a rough assessment of financial health, and I’m sure CPA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Copa Holdings to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CPA’s future growth? Take a look at our free research report of analyst consensus for CPA’s outlook.
Valuation: What is CPA 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 CPA 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 editorial-team@simplywallst.com.
