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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Indutrade AB (publ) (STO:INDT), with a market cap of kr35b, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at INDT’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 INDT here.
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Does INDT Produce Much Cash Relative To Its Debt?
INDT has built up its total debt levels in the last twelve months, from kr4.6b to kr5.3b , which includes long-term debt. With this rise in debt, INDT's cash and short-term investments stands at kr465m , ready to be used for running the business. Additionally, INDT has generated cash from operations of kr1.5b during the same period of time, leading to an operating cash to total debt ratio of 29%, indicating that INDT’s debt is appropriately covered by operating cash.
Can INDT meet its short-term obligations with the cash in hand?
With current liabilities at kr4.9b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. The current ratio is the number you get when you divide current assets by current liabilities. For Trade Distributors companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does INDT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 79%, INDT 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 INDT's case, the ratio of 27.63x suggests that interest is comfortably 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.