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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like M.D.C. Holdings, Inc. (NYSE:MDC), with a market cap of US$2.0b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at MDC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of M.D.C. Holdings’s financial health, so you should conduct further analysis into MDC here.
Does MDC Produce Much Cash Relative To Its Debt?
MDC's debt level has been constant at around US$1.1b over the previous year – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$416m , ready to be used for running the business. On top of this, MDC has generated US$108m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 9.6%, signalling that MDC’s operating cash is less than its debt.
Can MDC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$387m, the company has been able to meet these obligations given the level of current assets of US$2.9b, with a current ratio of 7.43x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is MDC’s debt level acceptable?
With a debt-to-equity ratio of 68%, MDC can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
MDC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around MDC's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MDC's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research M.D.C. Holdings to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDC’s future growth? Take a look at our free research report of analyst consensus for MDC’s outlook.
- Valuation: What is MDC 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 MDC 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.