What does Getinge AB's (STO:GETI B) Balance Sheet Tell Us About Its Future?
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Stocks with market capitalization between $2B and $10B, such as Getinge AB (STO:GETI B) with a size of kr41b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at GETI B’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into GETI B here.
See our latest analysis for Getinge
Does GETI B Produce Much Cash Relative To Its Debt?
GETI B's debt levels surged from kr11b to kr12b over the last 12 months – this includes long-term debt. With this rise in debt, GETI B's cash and short-term investments stands at kr993m , ready to be used for running the business. On top of this, GETI B has produced kr2.6b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 22%, signalling that GETI B’s operating cash is sufficient to cover its debt.
Can GETI B meet its short-term obligations with the cash in hand?
Looking at GETI B’s kr1.8b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of kr14b, leading to a 7.91x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Does GETI B face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 53%, GETI B 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. But since GETI B is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Although GETI B’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around GETI B's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for GETI B's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Getinge to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for GETI B’s future growth? Take a look at our free research report of analyst consensus for GETI B’s outlook.
Valuation: What is GETI B 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 GETI B is currently mispriced by the market.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
