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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Newell Brands Inc. (NASDAQ:NWL) with a market-capitalization of US$6.5b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at NWL’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 NWL here.
Does NWL Produce Much Cash Relative To Its Debt?
Over the past year, NWL has reduced its debt from US$11b to US$8.0b , which includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$364m , ready to be used for running the business. Additionally, NWL has generated US$881m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 11%, indicating that NWL’s debt is not covered by operating cash.
Can NWL pay its short-term liabilities?
At the current liabilities level of US$3.6b, the company has been able to meet these obligations given the level of current assets of US$7.5b, with a current ratio of 2.12x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Consumer Durables companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is NWL’s debt level acceptable?
Since total debt growth have outpaced equity growth, NWL is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since NWL is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although NWL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around NWL's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how NWL has been performing in the past. I recommend you continue to research Newell Brands to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NWL’s future growth? Take a look at our free research report of analyst consensus for NWL’s outlook.
- Valuation: What is NWL 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 NWL 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.