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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Floor & Decor Holdings, Inc. (NYSE:FND), with a market cap of US$4.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at FND’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. Don’t forget that this is a general and concentrated examination of Floor & Decor Holdings's financial health, so you should conduct further analysis into FND here.
Does FND Produce Much Cash Relative To Its Debt?
Over the past year, FND has ramped up its debt from US$173m to US$904m , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$451k , ready to be used for running the business. Moreover, FND has generated cash from operations of US$172m during the same period of time, resulting in an operating cash to total debt ratio of 19%, meaning that FND’s operating cash is less than its debt.
Can FND meet its short-term obligations with the cash in hand?
With current liabilities at US$398m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.32x. The current ratio is the number you get when you divide current assets by current liabilities. For Specialty Retail companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is FND’s debt level acceptable?
With debt at 24% of equity, FND may be thought of as appropriately levered. FND is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether FND 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 FND's, case, the ratio of 13.38x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as FND’s high interest coverage is seen as responsible and safe practice.
Although FND’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. I admit this is a fairly basic analysis for FND's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Floor & Decor Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FND’s future growth? Take a look at our free research report of analyst consensus for FND’s outlook.
- Valuation: What is FND 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 FND 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.