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Stocks with market capitalization between $2B and $10B, such as Flughafen Wien Aktiengesellschaft (VIE:FLU) with a size of €2.71b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at FLU’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into FLU here.
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How does FLU’s operating cash flow stack up against its debt?
FLU has shrunken its total debt levels in the last twelve months, from €427.73m to €400.32m , which comprises of short- and long-term debt. With this reduction in debt, FLU currently has €81.15m remaining in cash and short-term investments , ready to deploy into the business. On top of this, FLU has generated €264.35m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 66.04%, signalling that FLU’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 FLU’s case, it is able to generate 0.66x cash from its debt capital.
Does FLU’s liquid assets cover its short-term commitments?
Looking at FLU’s most recent €315.58m liabilities, the company has not been able to meet these commitments with a current assets level of €242.29m, leading to a 0.77x current account ratio. which is under the appropriate industry ratio of 3x.
Is FLU’s debt level acceptable?
With a debt-to-equity ratio of 32.46%, FLU’s debt level may be seen as prudent. FLU is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether FLU 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 FLU’s, case, the ratio of 10.85x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving FLU ample headroom to grow its debt facilities.
Next Steps:
FLU’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for FLU’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Flughafen Wien to get a better picture of the stock by looking at: