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Mid-caps stocks, like MEDNAX, Inc. (NYSE:MD) with a market capitalization of US$2.2b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine MD’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 MD here.
MD’s Debt (And Cash Flows)
MD has built up its total debt levels in the last twelve months, from US$2.0b to US$2.2b – this includes long-term debt. With this increase in debt, MD currently has US$113m remaining in cash and short-term investments to keep the business going. On top of this, MD has generated cash from operations of US$347m during the same period of time, resulting in an operating cash to total debt ratio of 16%, signalling that MD’s current level of operating cash is not high enough to cover debt.
Can MD meet its short-term obligations with the cash in hand?
With current liabilities at US$415m, it appears that the company has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 2.55x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Healthcare companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can MD service its debt comfortably?
With a debt-to-equity ratio of 76%, MD 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. We can check to see whether MD 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 MD's, case, the ratio of 4.53x suggests that interest is appropriately 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.
MD’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 MD's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure MD has company-specific issues impacting its capital structure decisions. I recommend you continue to research MEDNAX to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MD’s future growth? Take a look at our free research report of analyst consensus for MD’s outlook.
- Valuation: What is MD 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 MD 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.