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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as The New York Times Company (NYSE:NYT), with a market cap of US$5.8b, often get neglected by retail investors. 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. Today we will look at NYT’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of New York Times's financial health, so you should conduct further analysis into NYT here.
Does NYT Produce Much Cash Relative To Its Debt?
NYT has built up its total debt levels in the last twelve months, from US$251m to US$296m , which is mainly comprised of near term debt. With this growth in debt, NYT's cash and short-term investments stands at US$624m , ready to be used for running the business. Additionally, NYT has generated US$164m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 56%, meaning that NYT’s debt is appropriately covered by operating cash.
Can NYT meet its short-term obligations with the cash in hand?
At the current liabilities level of US$636m, it appears that the company has been able to meet these commitments with a current assets level of US$884m, leading to a 1.39x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Media 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.
Does NYT face the risk of succumbing to its debt-load?
NYT’s level of debt is appropriate relative to its total equity, at 24%. This range is considered safe as NYT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if NYT’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 NYT, the ratio of 12.5x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as NYT’s high interest coverage is seen as responsible and safe practice.
NYT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for NYT's financial health. Other important fundamentals need to be considered alongside. You should continue to research New York Times to get a more holistic view of the stock by looking at:
- Valuation: What is NYT 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 NYT is currently mispriced by the market.
- Historical Performance: What has NYT's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.