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What Investors Should Know About Casey's General Stores, Inc.'s (NASDAQ:CASY) Financial Strength

Simply Wall St

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Stocks with market capitalization between $2B and $10B, such as Casey's General Stores, Inc. (NASDAQ:CASY) with a size of US$4.8b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine CASY’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. Don’t forget that this is a general and concentrated examination of Casey's General Stores’s financial health, so you should conduct further analysis into CASY here.

Check out our latest analysis for Casey's General Stores

Does CASY Produce Much Cash Relative To Its Debt?

Over the past year, CASY has maintained its debt levels at around US$1.4b which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$34m to keep the business going. On top of this, CASY has produced US$502m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 37%, signalling that CASY’s operating cash is sufficient to cover its debt.

Can CASY pay its short-term liabilities?

At the current liabilities level of US$464m, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$351m, with a current ratio of 0.76x. The current ratio is calculated by dividing current assets by current liabilities.

NasdaqGS:CASY Historical Debt, May 1st 2019

Is CASY’s debt level acceptable?

CASY is a relatively highly levered company with a debt-to-equity of 97%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if CASY’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CASY, the ratio of 5.6x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CASY ample headroom to grow its debt facilities.

Next Steps:

Although CASY’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven't considered other factors such as how CASY has been performing in the past. You should continue to research Casey's General Stores to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CASY’s future growth? Take a look at our free research report of analyst consensus for CASY’s outlook.
  2. Valuation: What is CASY 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 CASY 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.

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 editorial-team@simplywallst.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.