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Mid-caps stocks, like Anixter International Inc. (NYSE:AXE) with a market capitalization of US$2.1b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. This article will examine AXE’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into AXE here.
AXE’s Debt (And Cash Flows)
AXE has built up its total debt levels in the last twelve months, from US$1.3b to US$1.6b , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$77m , ready to be used for running the business. Additionally, AXE has produced cash from operations of US$95m in the last twelve months, leading to an operating cash to total debt ratio of 5.9%, meaning that AXE’s current level of operating cash is not high enough to cover debt.
Can AXE meet its short-term obligations with the cash in hand?
Looking at AXE’s US$1.5b in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.1x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can AXE service its debt comfortably?
With a debt-to-equity ratio of 99%, AXE can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if AXE’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 AXE, the ratio of 4.34x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as AXE’s high interest coverage is seen as responsible and safe practice.
Although AXE’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 AXE's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for AXE's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Anixter International to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AXE’s future growth? Take a look at our free research report of analyst consensus for AXE’s outlook.
- Valuation: What is AXE 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 AXE 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 email@example.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.