Mid-caps stocks, like Manchester United plc (NYSE:MANU) with a market capitalization of US$3.5b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. MANU’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MANU here.
How much cash does MANU generate through its operations?
Over the past year, MANU has maintained its debt levels at around UK£508m including long-term debt. At this current level of debt, the current cash and short-term investment levels stands at UK£190m , ready to deploy into the business. On top of this, MANU has produced cash from operations of UK£194m in the last twelve months, leading to an operating cash to total debt ratio of 38%, signalling that MANU’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MANU’s case, it is able to generate 0.38x cash from its debt capital.
Can MANU meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£322m, it seems that the business may not be able to easily meet these obligations given the level of current assets of UK£318m, with a current ratio of 0.99x.
Is MANU’s debt level acceptable?
With total debt exceeding equities, MANU is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if MANU’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 MANU, the ratio of 2.84x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
MANU’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. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how MANU has been performing in the past. I recommend you continue to research Manchester United to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MANU’s future growth? Take a look at our free research report of analyst consensus for MANU’s outlook.
- Valuation: What is MANU 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 MANU 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.