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Stocks with market capitalization between $2B and $10B, such as Pattern Energy Group Inc. (NASDAQ:PEGI) with a size of US$2.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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 PEGI’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 Pattern Energy Group’s financial health, so you should conduct further analysis into PEGI here.

See our latest analysis for Pattern Energy Group

PEGI’s Debt (And Cash Flows)

PEGI has sustained its debt level by about US$2.5b over the last 12 months – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$93m , ready to be used for running the business. On top of this, PEGI has produced US$259m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 10%, indicating that PEGI’s operating cash is less than its debt.

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

Looking at PEGI’s US$501m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$222m, with a current ratio of 0.44x. The current ratio is the number you get when you divide current assets by current liabilities.

Can PEGI service its debt comfortably?

PEGI is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since PEGI is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although PEGI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven't considered other factors such as how PEGI has been performing in the past. You should continue to research Pattern Energy Group to get a more holistic view of the stock by looking at:

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

2. Valuation: What is PEGI 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 PEGI 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.

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.