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Is MDC Holdings Inc’s (NYSE:MDC) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like MDC Holdings Inc (NYSE:MDC), with a market cap of $1.91B. However, an important fact which most ignore is: how financially healthy is the business? Consumer Durables businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into MDC here.

How does MDC’s operating cash flow stack up against its debt?

MDC’s debt level has been constant at around $971.1M over the previous year – this includes both the current and long-term debt. At this constant level of debt, MDC currently has $318.9M remaining in cash and short-term investments , ready to deploy into the business. On top of this, MDC has generated cash from operations of $115.9M over the same time period, leading to an operating cash to total debt ratio of 11.94%, signalling that MDC’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MDC’s case, it is able to generate 0.12x cash from its debt capital.

Can MDC pay its short-term liabilities?

Looking at MDC’s most recent $351.9M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $2,336.4M, leading to a 6.64x current account ratio. However, anything about 3x may be excessive, since MDC may be leaving too much capital in low-earning investments.

NYSE:MDC Historical Debt Jan 18th 18
NYSE:MDC Historical Debt Jan 18th 18

Is MDC’s debt level acceptable?

With debt reaching 66.33% of equity, MDC may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

MDC’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure MDC has company-specific issues impacting its capital structure decisions. I suggest you continue to research M.D.C. Holdings to get a better picture of the stock by looking at:

1. 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.

2. 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.

3. 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 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.

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