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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Mainfreight Limited (NZSE:MFT) with a market-capitalization of NZ$3.6b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine MFT’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 MFT here.
MFT’s Debt (And Cash Flows)
MFT has shrunk its total debt levels in the last twelve months, from NZ$277m to NZ$246m – this includes long-term debt. With this debt repayment, MFT currently has NZ$115m remaining in cash and short-term investments , ready to be used for running the business. Moreover, MFT has generated NZ$197m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 80%, indicating that MFT’s current level of operating cash is high enough to cover debt.
Does MFT’s liquid assets cover its short-term commitments?
At the current liabilities level of NZ$399m, it seems that the business has been able to meet these obligations given the level of current assets of NZ$560m, with a current ratio of 1.4x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Logistics companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can MFT service its debt comfortably?
MFT’s level of debt is appropriate relative to its total equity, at 29%. MFT is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MFT 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 MFT's, case, the ratio of 27.13x 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.
MFT’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how MFT has been performing in the past. I recommend you continue to research Mainfreight to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MFT’s future growth? Take a look at our free research report of analyst consensus for MFT’s outlook.
- Valuation: What is MFT 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 MFT 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 email@example.com. 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.