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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Cal-Maine Foods, Inc. (NASDAQ:CALM) with a market-capitalization of US$2.0b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine CALM’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. Don’t forget that this is a general and concentrated examination of Cal-Maine Foods's financial health, so you should conduct further analysis into CALM here.
Does CALM Produce Much Cash Relative To Its Debt?
Over the past year, CALM has reduced its debt from US$7.3m to US$3.1m , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$342m to keep the business going. Moreover, CALM has produced cash from operations of US$149m over the same time period, leading to an operating cash to total debt ratio of 4772%, meaning that CALM’s operating cash is sufficient to cover its debt.
Can CALM pay its short-term liabilities?
At the current liabilities level of US$100m, it appears that the company has been able to meet these obligations given the level of current assets of US$617m, with a current ratio of 6.19x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is CALM’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Cal-Maine Foods, investors should not worry about its debt levels because the company has very, very little on its balance sheet! It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with CALM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
CALM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CALM's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Cal-Maine Foods to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CALM’s future growth? Take a look at our free research report of analyst consensus for CALM’s outlook.
- Valuation: What is CALM 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 CALM 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.