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C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), a large-cap worth US$12b, comes to mind for investors seeking a strong and reliable stock investment. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to their continued success lies in its financial health. I will provide an overview of C.H. Robinson Worldwide’s financial liquidity and leverage to give you an idea of C.H. Robinson Worldwide’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CHRW here.
Does CHRW produce enough cash relative to debt?
Over the past year, CHRW has reduced its debt from US$1.5b to US$1.3b , which also accounts for long term debt. With this debt repayment, CHRW’s cash and short-term investments stands at US$379m for investing into the business. Moreover, CHRW has generated cash from operations of US$793m over the same time period, leading to an operating cash to total debt ratio of 59%, meaning that CHRW’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CHRW’s case, it is able to generate 0.59x cash from its debt capital.
Can CHRW pay its short-term liabilities?
At the current liabilities level of US$1.4b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.92x. Usually, for Logistics 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.
Can CHRW service its debt comfortably?
With debt reaching 84% of equity, CHRW may be thought of as relatively highly levered. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. By measuring how many times CHRW’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In CHRW’s case, the ratio of 28.67x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes CHRW and other large-cap investments thought to be safe.
CHRW’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 CHRW’s financial health. Other important fundamentals need to be considered alongside. You should continue to research C.H. Robinson Worldwide to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CHRW’s future growth? Take a look at our free research report of analyst consensus for CHRW’s outlook.
- Valuation: What is CHRW 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 CHRW 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 firstname.lastname@example.org.