What You Must Know About Urban Outfitters Inc’s (NASDAQ:URBN) Financial Health
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Urban Outfitters Inc (NASDAQ:URBN), with a market cap of US$5.06b, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at URBN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into URBN here.
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Is URBN’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For URBN, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with URBN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does URBN’s liquid assets cover its short-term commitments?
Since Urban Outfitters doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$429.9m liabilities, the company has been able to meet these obligations given the level of current assets of US$1.20b, with a current ratio of 2.8x. Generally, for Specialty Retail companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Next Steps:
URBN has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt may also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for URBN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Urban Outfitters to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for URBN’s future growth? Take a look at our free research report of analyst consensus for URBN’s outlook.
Valuation: What is URBN 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 URBN 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
