Is The Manitowoc Company Inc (NYSE:MTW) A Financially Sound Company?
While small-cap stocks, such as The Manitowoc Company Inc (NYSE:MTW) with its market cap of US$835m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into MTW here.
How does MTW’s operating cash flow stack up against its debt?
MTW’s debt levels have fallen from US$289m to US$272m over the last 12 months , which is made up of current and long term debt. With this debt repayment, MTW currently has US$84m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of MTW’s operating efficiency ratios such as ROA here.
Can MTW pay its short-term liabilities?
Looking at MTW’s most recent US$514m liabilities, the company has been able to meet these obligations given the level of current assets of US$846m, with a current ratio of 1.65x. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does MTW face the risk of succumbing to its debt-load?
MTW is a relatively highly levered company with a debt-to-equity of 41%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether MTW 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 MTW’s, case, the ratio of 1.4x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
At its current level of cash flow coverage, MTW has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MTW’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Manitowoc Company to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MTW’s future growth? Take a look at our free research report of analyst consensus for MTW’s outlook.
Valuation: What is MTW 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 MTW 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
