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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Hays plc (LON:HAS), with a market cap of UK£2.2b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. HAS’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. Don’t forget that this is a general and concentrated examination of Hays's financial health, so you should conduct further analysis into HAS here.
Does HAS Produce Much Cash Relative To Its Debt?
Over the past year, HAS has ramped up its debt from UK£80m to UK£85m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at UK£118m , ready to be used for running the business. On top of this, HAS has generated UK£169m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 198%, meaning that HAS’s operating cash is sufficient to cover its debt.
Can HAS meet its short-term obligations with the cash in hand?
Looking at HAS’s UK£676m in current liabilities, the company has been able to meet these obligations given the level of current assets of UK£1.1b, with a current ratio of 1.6x. The current ratio is the number you get when you divide current assets by current liabilities. For Professional Services 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.
Is HAS’s debt level acceptable?
HAS’s level of debt is appropriate relative to its total equity, at 13%. HAS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether HAS 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 HAS's, case, the ratio of 113x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HAS’s high interest coverage is seen as responsible and safe practice.
HAS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how HAS has been performing in the past. You should continue to research Hays to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HAS’s future growth? Take a look at our free research report of analyst consensus for HAS’s outlook.
- Valuation: What is HAS 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 HAS 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 email@example.com. 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.