Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Ingredion Incorporated (NYSE:INGR), with a market cap of US$7.2b, 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. This article will examine INGR’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into INGR here.
How much cash does INGR generate through its operations?
INGR’s debt levels have fallen from US$1.9b to US$1.7b over the last 12 months – this includes long-term debt. With this reduction in debt, INGR currently has US$437m remaining in cash and short-term investments , ready to deploy into the business. Additionally, INGR has generated US$824m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 49%, indicating that INGR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In INGR’s case, it is able to generate 0.49x cash from its debt capital.
Can INGR pay its short-term liabilities?
At the current liabilities level of US$875m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.5x. For Food companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is INGR’s debt level acceptable?
With debt reaching 59% of equity, INGR may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether INGR 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 INGR’s, case, the ratio of 10.58x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving INGR ample headroom to grow its debt facilities.
Although INGR’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 INGR’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 INGR has been performing in the past. I suggest you continue to research Ingredion to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INGR’s future growth? Take a look at our free research report of analyst consensus for INGR’s outlook.
- Valuation: What is INGR 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 INGR 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.
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 email@example.com.