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Stocks with market capitalization between $2B and $10B, such as Werner Enterprises, Inc. (NASDAQ:WERN) with a size of US$2.0b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine WERN’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WERN here.
WERN’s Debt (And Cash Flows)
WERN has built up its total debt levels in the last twelve months, from US$75m to US$133m , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$65m , ready to be used for running the business. On top of this, WERN has produced US$457m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 343%, indicating that WERN’s debt is appropriately covered by operating cash.
Can WERN meet its short-term obligations with the cash in hand?
Looking at WERN’s US$323m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$455m, leading to a 1.41x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Transportation companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does WERN face the risk of succumbing to its debt-load?
WERN’s level of debt is appropriate relative to its total equity, at 10%. This range is considered safe as WERN is not taking on too much debt obligation, which may be constraining for future growth. We can test if WERN’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 WERN, the ratio of 1311x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving WERN ample headroom to grow its debt facilities.
WERN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 WERN has been performing in the past. You should continue to research Werner Enterprises to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WERN’s future growth? Take a look at our free research report of analyst consensus for WERN’s outlook.
- Valuation: What is WERN 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 WERN 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.