What Investors Should Know About Ashland Global Holdings Inc’s (NYSE:ASH) Financial Strength
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Ashland Global Holdings Inc (NYSE:ASH), with a market capitalization of US$4.52B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at ASH’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ASH here. See our latest analysis for Ashland Global Holdings
Does ASH generate an acceptable amount of cash through operations?
ASH’s debt levels surged from US$2.50B to US$2.82B over the last 12 months – this includes both the current and long-term debt. With this growth in debt, ASH’s cash and short-term investments stands at US$566.00M for investing into the business. On top of this, ASH has generated US$365.00M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 12.95%, meaning that ASH’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In ASH’s case, it is able to generate 0.13x cash from its debt capital.
Can ASH pay its short-term liabilities?
Looking at ASH’s most recent US$968.00M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.97x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is ASH’s debt level acceptable?
ASH is a relatively highly levered company with a debt-to-equity of 86.47%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ASH is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
ASH’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ASH has been performing in the past. You should continue to research Ashland Global Holdings to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ASH’s future growth? Take a look at our free research report of analyst consensus for ASH’s outlook.
2. Valuation: What is ASH 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 ASH 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.
