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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Acushnet Holdings Corp. (NYSE:GOLF), with a market cap of US$2.0b, often get neglected by retail investors. 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. GOLF’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into GOLF here.
Does GOLF Produce Much Cash Relative To Its Debt?
GOLF has sustained its debt level by about US$566m over the last 12 months including long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$43m to keep the business going. On top of this, GOLF has generated US$161m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 28%, signalling that GOLF’s operating cash is sufficient to cover its debt.
Can GOLF pay its short-term liabilities?
With current liabilities at US$430m, the company has been able to meet these commitments with a current assets level of US$813m, leading to a 1.89x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Leisure companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does GOLF face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 55%, GOLF can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if GOLF’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 GOLF, the ratio of 8.38x 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.
GOLF’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for GOLF's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Acushnet Holdings to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GOLF’s future growth? Take a look at our free research report of analyst consensus for GOLF’s outlook.
- Valuation: What is GOLF 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 GOLF 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.