Yahoo Finance What does Imerys SA’s (EPA:NK) Balance Sheet Tell Us About Its Future?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Imerys SA (EPA:NK) with a market-capitalization of €5.03b, 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 NK’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. Don’t forget that this is a general and concentrated examination of Imerys’s financial health, so you should conduct further analysis into NK here.
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Does NK produce enough cash relative to debt?
NK’s debt levels surged from €2.24b to €2.80b over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, NK’s cash and short-term investments stands at €465.7m , ready to deploy into the business. Moreover, NK has produced €687.8m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 24.6%, meaning that NK’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 NK’s case, it is able to generate 0.25x cash from its debt capital.
Does NK’s liquid assets cover its short-term commitments?
With current liabilities at €2.00b, it seems that the business has been able to meet these obligations given the level of current assets of €2.61b, with a current ratio of 1.31x. For Basic Materials companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is NK’s debt level acceptable?
With a debt-to-equity ratio of 95.6%, NK can be considered as an above-average leveraged company. 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 NK’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 NK, the ratio of 16.32x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving NK ample headroom to grow its debt facilities.
Next Steps:
NK’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 exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for NK’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Imerys to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NK’s future growth? Take a look at our free research report of analyst consensus for NK’s outlook.
Valuation: What is NK 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 NK 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.
