Oxford Industries Inc (NYSE:OXM) is a small-cap stock with a market capitalization of US$1.34B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into OXM here.
How does OXM’s operating cash flow stack up against its debt?
OXM’s debt levels surged from US$43.98M to US$91.51M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, OXM currently has US$6.33M remaining in cash and short-term investments , ready to deploy into the business. Additionally, OXM has produced US$118.57M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 129.57%, meaning that OXM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OXM’s case, it is able to generate 1.3x cash from its debt capital.
Can OXM pay its short-term liabilities?
Looking at OXM’s most recent US$131.40M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$231.63M, leading to a 1.76x current account ratio. Generally, for Luxury companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can OXM service its debt comfortably?
With a debt-to-equity ratio of 17.72%, OXM’s debt level may be seen as prudent. OXM is not taking on too much debt commitment, which may be constraining for future growth. We can test if OXM’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 OXM, the ratio of 27.85x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving OXM ample headroom to grow its debt facilities.
OXM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 OXM has company-specific issues impacting its capital structure decisions. You should continue to research Oxford Industries to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for OXM’s future growth? Take a look at our free research report of analyst consensus for OXM’s outlook.
- 2. Valuation: What is OXM 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 OXM 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.