Stocks with market capitalization between $2B and $10B, such as Minerals Technologies Inc. (NYSE:MTX) with a size of US$2.2b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at MTX’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into MTX here.
Does MTX Produce Much Cash Relative To Its Debt?
MTX's debt levels surged from US$970m to US$1.0b over the last 12 months , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$213m to keep the business going. On top of this, MTX has produced cash from operations of US$204m during the same period of time, leading to an operating cash to total debt ratio of 20%, signalling that MTX’s operating cash is less than its debt.
Can MTX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$382m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.29x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Chemicals companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can MTX service its debt comfortably?
With a debt-to-equity ratio of 74%, MTX can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MTX's case, the ratio of 5.53x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MTX’s high interest coverage is seen as responsible and safe practice.
MTX’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how MTX has been performing in the past. I suggest you continue to research Minerals Technologies to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MTX’s future growth? Take a look at our free research report of analyst consensus for MTX’s outlook.
- Valuation: What is MTX 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 MTX 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.
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