Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Knight-Swift Transportation Holdings Inc (NYSE:KNX) with a market-capitalization of US$7.24b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. KNX’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KNX here. View out our latest analysis for Knight-Swift Transportation Holdings
How does KNX’s operating cash flow stack up against its debt?
KNX has built up its total debt levels in the last twelve months, from US$18.00m to US$0 , which is made up of current and long term debt. With this rise in debt, KNX’s cash and short-term investments stands at US$76.65m , ready to deploy into the business. Moreover, KNX has generated US$318.57m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 32.81%, meaning that KNX’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KNX’s case, it is able to generate 0.33x cash from its debt capital.
Can KNX pay its short-term liabilities?
With current liabilities at US$609.55m, the company has been able to meet these obligations given the level of current assets of US$923.21m, with a current ratio of 1.51x. Usually, for Transportation companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can KNX service its debt comfortably?
KNX’s level of debt is appropriate relative to its total equity, at 16.33%. This range is considered safe as KNX is not taking on too much debt obligation, which may be constraining for future growth. We can test if KNX’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For KNX, the ratio of 21.74x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving KNX ample headroom to grow its debt facilities.
KNX’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 KNX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Knight-Swift Transportation Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KNX’s future growth? Take a look at our free research report of analyst consensus for KNX’s outlook.
- Valuation: What is KNX 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 KNX 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 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.