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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Qube Holdings Limited (ASX:QUB) with a market-capitalization of AU$4.3b, rarely draw their attention. 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 QUB’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Qube Holdings’s financial health, so you should conduct further analysis into QUB here.
How much cash does QUB generate through its operations?
QUB’s debt levels surged from AU$803m to AU$967m over the last 12 months , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at AU$104m , ready to deploy into the business. On top of this, QUB has produced cash from operations of AU$206m in the last twelve months, resulting in an operating cash to total debt ratio of 21%, indicating that QUB’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In QUB’s case, it is able to generate 0.21x cash from its debt capital.
Does QUB’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$245m, it appears that the company has been able to meet these obligations given the level of current assets of AU$427m, with a current ratio of 1.75x. Usually, for Infrastructure companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can QUB service its debt comfortably?
With debt at 35% of equity, QUB may be thought of as appropriately levered. This range is considered safe as QUB is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if QUB’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 QUB, the ratio of 9.29x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving QUB ample headroom to grow its debt facilities.
QUB’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for QUB’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Qube Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QUB’s future growth? Take a look at our free research report of analyst consensus for QUB’s outlook.
- Historical Performance: What has QUB’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 email@example.com.