Mid-caps stocks, like Nordstrom Inc (NYSE:JWN) with a market capitalization of US$7.91B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at JWN’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 JWN here. View our latest analysis for Nordstrom
Does JWN generate enough cash through operations?
JWN has sustained its debt level by about US$2.74B over the last 12 months comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$1.18B , ready to deploy into the business. Moreover, JWN has produced US$1.40B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 51.15%, signalling that JWN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In JWN’s case, it is able to generate 0.51x cash from its debt capital.
Can JWN pay its short-term liabilities?
With current liabilities at US$3.29B, it appears that the company has been able to meet these obligations given the level of current assets of US$3.50B, with a current ratio of 1.07x. Usually, for Multiline Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is JWN’s debt level acceptable?
Since total debt levels have outpaced equities, JWN is a highly leveraged 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 JWN’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 JWN, the ratio of 6.81x suggests that interest is appropriately 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.
JWN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around JWN’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for JWN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Nordstrom to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JWN’s future growth? Take a look at our free research report of analyst consensus for JWN’s outlook.
- Valuation: What is JWN 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 JWN 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 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.