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Is Forward Air Corporation (NASDAQ:FWRD) As Strong As Its Balance Sheet Indicates?

Ashwin Virk

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Forward Air Corporation (NASDAQ:FWRD), with a market cap of US$2.01b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at FWRD’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into FWRD here.

See our latest analysis for Forward Air

Does FWRD produce enough cash relative to debt?

FWRD has built up its total debt levels in the last twelve months, from US$21.4m to US$40.8m , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$20.1m , ready to deploy into the business. Moreover, FWRD has produced cash from operations of US$118.4m during the same period of time, leading to an operating cash to total debt ratio of 290%, indicating that FWRD’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FWRD’s case, it is able to generate 2.9x cash from its debt capital.

Can FWRD meet its short-term obligations with the cash in hand?

Looking at FWRD’s most recent US$69.7m liabilities, the company has been able to meet these obligations given the level of current assets of US$193.5m, with a current ratio of 2.78x. Generally, for Logistics companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NasdaqGS:FWRD Historical Debt September 21st 18

Is FWRD’s debt level acceptable?

With a debt-to-equity ratio of 7.5%, FWRD’s debt level is relatively low. FWRD is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether FWRD 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 FWRD’s, case, the ratio of 72.93x suggests that interest is comfortably 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.

Next Steps:

FWRD has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for FWRD’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Forward Air to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FWRD’s future growth? Take a look at our free research report of analyst consensus for FWRD’s outlook.
  2. Valuation: What is FWRD 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 FWRD is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com.