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Julius Berger Nigeria Plc’s high working capital that signals it has the financial resources to meet all of its short-term obligations harbours the potential for strong growth.
For instance, the largest construction company by market capitalization in Africa’s most populous nation currently has a current ratio of 2.50 as at March 2023, meaning it can easily settle each Naira on loan or account payable.
Meeting obligations to suppliers and other creditors even amid a severe foreign exchange scarcity that has crippled businesses shows the company is well managed and its owners are paying attention to the working capital cycle.
Of course, there is a trade-off between profitability and liquidity in business as a firm may be profitable but beleaguered by liquidity issues.
The company’s total account payables stood at N59.20 billion as at March 2023, which is 11.83 percent higher than 2022’s N53.13 billion.
It has contract liabilities of N310.76 billion in the period under review, which is 11.55 percent higher than 2022’s N307.12 billion.
The construction company is not susceptible to bankruptcy risks as it has solid cash flow or earnings position to pay interest on its debt, despite rising interest rates.
It has an interest coverage ratio of 3.25 as at March 2023, but lower than 2022’s 7.86, according to MoneyCentral’s calculations.
The ratio is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.
The deterioration in the ratio stems from rising finance costs as rising interest rate brought on by the central bank’s tightening campaign to tame inflation means the company pays more to service debt in its books.
Julius Berger has remained profitable amid weak macroeconomic conditions, posting a profit during the coronavirus pandemic as construction activities came to a temporary halt due to the lock down policy imposed by the government.
As a result of slow growth in sales and rising cost of production, the company’s net income or profit after tax (PAT) dipped by 39.76 percent to N2.24 billion as at March 2023, from N3.72 billion the previous year.
Operating profit was down 11.82 percent to N4.10 billion in March 2023 from N4.65 billion as at March 2022.
Investors have confidence in the potential of the company to maintain the current strong liquidity position and a healthy balance sheet as its shares have gained 28.16 percent, which outperforms NGXASI index’s 13.49 percent.