Stocks with market capitalization between $2B and $10B, such as NVR Inc (NYSE:NVR) with a size of US$9.98b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. NVR’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. Don’t forget that this is a general and concentrated examination of NVR’s financial health, so you should conduct further analysis into NVR here.
How much cash does NVR generate through its operations?
NVR has sustained its debt level by about US$597.37m over the last 12 months made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at US$418.47m for investing into the business. Additionally, NVR has produced cash from operations of US$560.15m over the same time period, leading to an operating cash to total debt ratio of 93.77%, signalling that NVR’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 NVR’s case, it is able to generate 0.94x cash from its debt capital.
Does NVR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$632.42m 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 3.69x. However, a ratio greater than 3x may be considered as too high, as NVR could be holding too much capital in a low-return investment environment.
Can NVR service its debt comfortably?
NVR’s level of debt is appropriate relative to its total equity, at 37.16%. NVR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether NVR 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 NVR’s, case, the ratio of 40.31x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as NVR’s high interest coverage is seen as responsible and safe practice.
NVR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for NVR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research NVR to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NVR’s future growth? Take a look at our free research report of analyst consensus for NVR’s outlook.
- Valuation: What is NVR 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 NVR 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.