Yahoo Finance What Investors Should Know About Algonquin Power & Utilities Corp.'s (TSE:AQN) Financial Strength
Mid-caps stocks, like Algonquin Power & Utilities Corp. (TSE:AQN) with a market capitalization of CA$7.5b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine AQN’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AQN here.
Check out our latest analysis for Algonquin Power & Utilities
AQN’s Debt (And Cash Flows)
Over the past year, AQN has ramped up its debt from US$3.1b to US$3.4b , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$47m , ready to be used for running the business. Additionally, AQN has generated cash from operations of US$530m in the last twelve months, resulting in an operating cash to total debt ratio of 15%, meaning that AQN’s debt is not covered by operating cash.
Does AQN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$499m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$492m, leading to a current ratio of 0.99x. The current ratio is calculated by dividing current assets by current liabilities.
Can AQN service its debt comfortably?
With a debt-to-equity ratio of 85%, AQN can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In AQN's case, the ratio of 3.73x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AQN ample headroom to grow its debt facilities.
Next Steps:
AQN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven't considered other factors such as how AQN has been performing in the past. You should continue to research Algonquin Power & Utilities to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AQN’s future growth? Take a look at our free research report of analyst consensus for AQN’s outlook.
Historical Performance: What has AQN's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
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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.
