Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Stocks with market capitalization between $2B and $10B, such as PSP Swiss Property AG (VTX:PSPN) with a size of CHF5.2b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. PSPN’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 PSPN here.

View our latest analysis for PSP Swiss Property

PSPN’s Debt (And Cash Flows)

PSPN's debt levels surged from CHF2.6b to CHF2.7b over the last 12 months – this includes long-term debt. With this growth in debt, PSPN currently has CHF17m remaining in cash and short-term investments , ready to be used for running the business. Additionally, PSPN has generated CHF203m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 7.5%, meaning that PSPN’s current level of operating cash is not high enough to cover debt.

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

Looking at PSPN’s CHF752m in current liabilities, the company may not be able to easily meet these obligations given the level of current assets of CHF222m, with a current ratio of 0.3x. The current ratio is the number you get when you divide current assets by current liabilities.

Does PSPN face the risk of succumbing to its debt-load?

PSPN is a relatively highly levered company with a debt-to-equity of 63%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if PSPN’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 PSPN, the ratio of 11.54x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving PSPN ample headroom to grow its debt facilities.

Next Steps:

Although PSPN’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. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven't considered other factors such as how PSPN has been performing in the past. I recommend you continue to research PSP Swiss Property to get a better picture of the stock by looking at:

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

2. Valuation: What is PSPN 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 PSPN 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.