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Does Seven Group Holdings Limited’s (ASX:SVW) Debt Level Pose A Problem?

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Seven Group Holdings Limited (ASX:SVW), with a market capitalization of AU$6.32b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. SVW’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SVW here. See our latest analysis for Seven Group Holdings

Does SVW produce enough cash relative to debt?

SVW’s debt levels have fallen from AU$1.74b to AU$1.53b over the last 12 months , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at AU$172.50m , ready to deploy into the business. On top of this, SVW has generated cash from operations of AU$295.80m over the same time period, resulting in an operating cash to total debt ratio of 19.34%, indicating that SVW’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SVW’s case, it is able to generate 0.19x cash from its debt capital.

Does SVW’s liquid assets cover its short-term commitments?

At the current liabilities level of AU$686.60m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.78x. For Trade Distributors companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

ASX:SVW Historical Debt June 22nd 18
ASX:SVW Historical Debt June 22nd 18

Is SVW’s debt level acceptable?

With a debt-to-equity ratio of 87.53%, SVW 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 check to see whether SVW 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 SVW’s, case, the ratio of 3.3x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as SVW’s high interest coverage is seen as responsible and safe practice.

Next Steps:

SVW’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure SVW has company-specific issues impacting its capital structure decisions. I recommend you continue to research Seven Group Holdings to get a more holistic view of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for SVW’s future growth? Take a look at our free research report of analyst consensus for SVW’s outlook.

  2. Valuation: What is SVW 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 SVW is currently mispriced by the market.

  3. 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 pass 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.