Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as WD-40 Company (NASDAQ:WDFC), with a market capitalization of US$2.51b, rarely draw their attention from the investing community. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. WDFC’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WDFC here.
How much cash does WDFC generate through its operations?
WDFC has built up its total debt levels in the last twelve months, from US$154.0m to US$168.1m , which comprises of short- and long-term debt. With this increase in debt, WDFC’s cash and short-term investments stands at US$123.6m , ready to deploy into the business. Additionally, WDFC has produced US$59.1m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 35.1%, meaning that WDFC’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 WDFC’s case, it is able to generate 0.35x cash from its debt capital.
Can WDFC pay its short-term liabilities?
Looking at WDFC’s most recent US$135.5m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$236.8m, with a current ratio of 1.75x. For Household Products companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is WDFC’s debt level acceptable?
With total debt exceeding equities, WDFC is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if WDFC’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 WDFC, the ratio of 23.71x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although WDFC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. 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 WDFC has been performing in the past. You should continue to research WD-40 to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WDFC’s future growth? Take a look at our free research report of analyst consensus for WDFC’s outlook.
- Valuation: What is WDFC 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 WDFC 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 email@example.com.