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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Cantel Medical Corp. (NYSE:CMD) with a market-capitalization of US$3.2b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. CMD’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into CMD here.
Does CMD Produce Much Cash Relative To Its Debt?
CMD's debt levels surged from US$169m to US$233m over the last 12 months , which includes long-term debt. With this growth in debt, CMD currently has US$51m remaining in cash and short-term investments , ready to be used for running the business. Moreover, CMD has generated cash from operations of US$84m during the same period of time, resulting in an operating cash to total debt ratio of 36%, signalling that CMD’s operating cash is sufficient to cover its debt.
Can CMD pay its short-term liabilities?
At the current liabilities level of US$151m, it appears that the company has been able to meet these commitments with a current assets level of US$353m, leading to a 2.33x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CMD’s debt level acceptable?
With a debt-to-equity ratio of 36%, CMD's debt level may be seen as prudent. This range is considered safe as CMD is not taking on too much debt obligation, which may be constraining for future growth. We can test if CMD’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 CMD, the ratio of 14.62x 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.
CMD’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure CMD has company-specific issues impacting its capital structure decisions. I suggest you continue to research Cantel Medical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMD’s future growth? Take a look at our free research report of analyst consensus for CMD’s outlook.
- Valuation: What is CMD 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 CMD 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.
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 firstname.lastname@example.org. 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.