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Martin Marietta Materials, Inc. (NYSE:MLM), a large-cap worth US$13b, 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. But, the key to their continued success lies in its financial health. This article will examine Martin Marietta Materials’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. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into MLM here.
MLM’s Debt (And Cash Flows)
MLM has sustained its debt level by about US$3.1b over the last 12 months which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$45m , ready to be used for running the business. On top of this, MLM has produced cash from operations of US$705m over the same time period, leading to an operating cash to total debt ratio of 23%, signalling that MLM’s operating cash is sufficient to cover its debt.
Can MLM pay its short-term liabilities?
At the current liabilities level of US$787m, the company has been able to meet these commitments with a current assets level of US$1.4b, leading to a 1.74x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Basic Materials companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does MLM face the risk of succumbing to its debt-load?
With debt reaching 63% of equity, MLM may be thought of as relatively highly levered. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In MLM's case, the ratio of 5.43x suggests that interest is appropriately covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as MLM is a safe investment.
At its current level of cash flow coverage, MLM has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure MLM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Martin Marietta Materials to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MLM’s future growth? Take a look at our free research report of analyst consensus for MLM’s outlook.
- Valuation: What is MLM 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 MLM 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 firstname.lastname@example.org. 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.