In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Stocks with market capitalization between $2B and $10B, such as AB Sagax (publ) (STO:SAGA A) with a size of kr32b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine SAGA A’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 AB Sagax’s financial health, so you should conduct further analysis into SAGA A here.
Check out our latest analysis for AB Sagax
SAGA A’s Debt (And Cash Flows)
SAGA A's debt levels surged from kr16b to kr17b over the last 12 months – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at kr544m to keep the business going. On top of this, SAGA A has generated kr1.6b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 9.5%, indicating that SAGA A’s current level of operating cash is not high enough to cover debt.
Can SAGA A meet its short-term obligations with the cash in hand?
At the current liabilities level of kr2.3b, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.47x. The current ratio is calculated by dividing current assets by current liabilities.
Can SAGA A service its debt comfortably?
With total debt exceeding equity, SAGA A is considered a highly levered company. 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 SAGA A 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 SAGA A's, case, the ratio of 4.4x 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:
SAGA A’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. Though 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 SAGA A has been performing in the past. I recommend you continue to research AB Sagax to get a more holistic view of the stock by looking at: