Yahoo Finance What Investors Should Know About Keyera Corp’s (TSE:KEY) Financial Strength
Mid-caps stocks, like Keyera Corp (TSE:KEY) with a market capitalization of CA$6.9b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at KEY’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into KEY here.
See our latest analysis for Keyera
Does KEY produce enough cash relative to debt?
KEY’s debt levels surged from CA$1.9b to CA$2.2b over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$270m , ready to deploy into the business. Moreover, KEY has generated cash from operations of CA$583m in the last twelve months, resulting in an operating cash to total debt ratio of 26%, indicating that KEY’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KEY’s case, it is able to generate 0.26x cash from its debt capital.
Can KEY pay its short-term liabilities?
Looking at KEY’s most recent CA$900m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.16x. Generally, for Oil and Gas companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does KEY face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 86%, KEY 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 KEY’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 KEY, the ratio of 7.87x suggests that interest is appropriately 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:
KEY’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. 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 KEY has company-specific issues impacting its capital structure decisions. I suggest you continue to research Keyera to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for KEY’s future growth? Take a look at our free research report of analyst consensus for KEY’s outlook.
Valuation: What is KEY 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 KEY 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.
