All You Need To Know About Wm Morrison Supermarkets PLC’s (LON:MRW) Financial Health
Stocks with market capitalization between $2B and $10B, such as Wm Morrison Supermarkets PLC (LSE:MRW) with a size of £5.22B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. I recommend you look at the following hurdles to assess MRW’s financial health. See our latest analysis for Wm Morrison Supermarkets
Does MRW face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For MRW, the debt-to-equity ratio is 37.01%, which indicates that its debt is at an acceptable level. While debt-to-equity ratio has several factors at play, an easier way to check whether MRW’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings (EBIT) at least three times its interest payments is considered financially sound. MRW’s profits amply covers interest at 8.75 times, which is seen as relatively safe. Debtors may be willing to loan the company more money, giving MRW ample headroom to grow its debt facilities.
Can MRW meet its short-term obligations with the cash in hand?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. We need to assess MRW’s cash and other liquid assets against its upcoming expenses. Our analysis shows that MRW is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Next Steps:
Are you a shareholder? MRW has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Since MRW’s capital structure may change, You should continue assessing market expectations for MRW’s future growth on our free analysis platform.
Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. MRW’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass 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.
