Gildan Activewear Inc (TSE:GIL): Financial Strength Analysis
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Gildan Activewear Inc (TSX:GIL), with a market cap of CA$9.18B, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at GIL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into GIL here. View our latest analysis for Gildan Activewear
How does GIL’s operating cash flow stack up against its debt?
GIL’s debt levels surged from $375.0M to $600.0M over the last 12 months , which is made up of current and long term debt. With this growth in debt, GIL currently has $72.5M remaining in cash and short-term investments , ready to deploy into the business. On top of this, GIL has generated cash from operations of $537.9M over the same time period, resulting in an operating cash to total debt ratio of 89.65%, indicating that GIL’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GIL’s case, it is able to generate 0.9x cash from its debt capital.
Can GIL pay its short-term liabilities?
With current liabilities at $235.9M, it seems that the business has been able to meet these commitments with a current assets level of $1,340.5M, leading to a 5.68x current account ratio. Though, anything above 3x is considered high and could mean that GIL has too much idle capital in low-earning investments.
Does GIL face the risk of succumbing to its debt-load?
GIL’s level of debt is appropriate relative to its total equity, at 34.07%. GIL is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether GIL 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 GIL’s, case, the ratio of 24.95x 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:
GIL’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for GIL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Gildan Activewear to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for GIL’s future growth? Take a look at our free research report of analyst consensus for GIL’s outlook.
2. Valuation: What is GIL 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 GIL 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 pass 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.
