What You Must Know About Wolverine World Wide, Inc.’s (NYSE:WWW) Financial Strength
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Wolverine World Wide, Inc. (NYSE:WWW), with a market cap of US$3.1b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine WWW’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into WWW here.
Check out our latest analysis for Wolverine World Wide
How much cash does WWW generate through its operations?
Over the past year, WWW has reduced its debt from US$797m to US$663m , which also accounts for long term debt. With this debt repayment, WWW currently has US$228m remaining in cash and short-term investments , ready to deploy into the business. Additionally, WWW has produced cash from operations of US$119m during the same period of time, leading to an operating cash to total debt ratio of 18%, meaning that WWW’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WWW’s case, it is able to generate 0.18x cash from its debt capital.
Can WWW pay its short-term liabilities?
With current liabilities at US$358m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.65x. For Luxury 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 WWW’s debt level acceptable?
With a debt-to-equity ratio of 62%, WWW can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In WWW’s case, the ratio of 7.37x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving WWW ample headroom to grow its debt facilities.
Next Steps:
Although WWW’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. This is only a rough assessment of financial health, and I’m sure WWW has company-specific issues impacting its capital structure decisions. You should continue to research Wolverine World Wide to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for WWW’s future growth? Take a look at our free research report of analyst consensus for WWW’s outlook.
Valuation: What is WWW 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 WWW 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.
