Is DICK'S Sporting Goods, Inc. (NYSE:DKS) A Financially Strong Company?
Stocks with market capitalization between $2B and $10B, such as DICK'S Sporting Goods, Inc. (NYSE:DKS) with a size of US$3.4b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at DKS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into DKS here.
See our latest analysis for DICK'S Sporting Goods
Does DKS Produce Much Cash Relative To Its Debt?
DKS has built up its total debt levels in the last twelve months, from US$344m to US$3.4b , which includes long-term debt. With this rise in debt, DKS's cash and short-term investments stands at US$92m to keep the business going. Additionally, DKS has produced cash from operations of US$510m in the last twelve months, leading to an operating cash to total debt ratio of 15%, meaning that DKS’s debt is not covered by operating cash.
Can DKS meet its short-term obligations with the cash in hand?
Looking at DKS’s US$1.9b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$2.4b, with a current ratio of 1.31x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Specialty Retail companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is DKS’s debt level acceptable?
DKS’s level of debt is appropriate relative to its total equity, at 20%. DKS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether DKS 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 DKS's, case, the ratio of 41.33x 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.
Next Steps:
Although DKS’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure DKS has company-specific issues impacting its capital structure decisions. You should continue to research DICK'S Sporting Goods to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DKS’s future growth? Take a look at our free research report of analyst consensus for DKS’s outlook.
Valuation: What is DKS 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 DKS 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.
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