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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Cantel Medical Corp. (NYSE:CMD), with a market cap of US$3.2b, are often out of the spotlight. 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. CMD’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. Don’t forget that this is a general and concentrated examination of Cantel Medical's financial health, so you should conduct further analysis into CMD here.
Does CMD Produce Much Cash Relative To Its Debt?
CMD's debt levels surged from US$169m to US$233m over the last 12 months – this includes long-term debt. With this rise in debt, CMD's cash and short-term investments stands at US$51m , ready to be used for running the business. On top of this, CMD has produced cash from operations of US$84m during the same period of time, resulting in an operating cash to total debt ratio of 36%, indicating that CMD’s operating cash is sufficient to cover its debt.
Can CMD pay its short-term liabilities?
At the current liabilities level of US$151m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.33x. The current ratio is calculated by dividing current assets by current liabilities. For Medical Equipment companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is CMD’s debt level acceptable?
CMD’s level of debt is appropriate relative to its total equity, at 36%. CMD is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if CMD’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 CMD, the ratio of 14.62x suggests that interest is comfortably 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.
CMD’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CMD's financial health. Other important fundamentals need to be considered alongside. You should continue to research Cantel Medical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMD’s future growth? Take a look at our free research report of analyst consensus for CMD’s outlook.
- Valuation: What is CMD 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 CMD 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.