Are ASGN Incorporated’s (NYSE:ASGN) Interest Costs Too High?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as ASGN Incorporated (NYSE:ASGN), with a market capitalization of US$4.85b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine ASGN’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ASGN here.
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How does ASGN’s operating cash flow stack up against its debt?
ASGN’s debt levels surged from US$579.8m to US$1.24b over the last 12 months , which is made up of current and long term debt. With this growth in debt, ASGN’s cash and short-term investments stands at US$44.7m for investing into the business. Moreover, ASGN has produced cash from operations of US$244.3m in the last twelve months, resulting in an operating cash to total debt ratio of 19.7%, signalling that ASGN’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ASGN’s case, it is able to generate 0.2x cash from its debt capital.
Does ASGN’s liquid assets cover its short-term commitments?
Looking at ASGN’s most recent US$279.1m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$637.3m, with a current ratio of 2.28x. Usually, for Professional Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does ASGN face the risk of succumbing to its debt-load?
ASGN 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. We can check to see whether ASGN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ASGN’s, case, the ratio of 6.1x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
ASGN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ASGN has company-specific issues impacting its capital structure decisions. You should continue to research ASGN to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ASGN’s future growth? Take a look at our free research report of analyst consensus for ASGN’s outlook.
Valuation: What is ASGN 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 ASGN 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
