Mid-caps stocks, like Sensient Technologies Corporation (NYSE:SXT) with a market capitalization of US$3.26b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine SXT’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 Sensient Technologies’s financial health, so you should conduct further analysis into SXT here.
How much cash does SXT generate through its operations?
SXT’s debt levels surged from US$607.3m to US$752.8m over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, SXT’s cash and short-term investments stands at US$30.9m for investing into the business. On top of this, SXT has generated US$151.5m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 20.1%, signalling that SXT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SXT’s case, it is able to generate 0.2x cash from its debt capital.
Can SXT pay its short-term liabilities?
At the current liabilities level of US$198.7m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$825.8m, with a current ratio of 4.16x. However, anything above 3x is considered high and could mean that SXT has too much idle capital in low-earning investments.
Does SXT face the risk of succumbing to its debt-load?
With debt reaching 92.2% of equity, SXT may be thought of as relatively highly levered. 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 SXT’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 SXT, the ratio of 10.31x 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.
SXT’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how SXT has been performing in the past. I recommend you continue to research Sensient Technologies to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SXT’s future growth? Take a look at our free research report of analyst consensus for SXT’s outlook.
- Valuation: What is SXT 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 SXT 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 firstname.lastname@example.org.