Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Oshkosh Corporation (NYSE:OSK), with a market cap of US$5.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at OSK’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into OSK here.
Does OSK produce enough cash relative to debt?
Over the past year, OSK has maintained its debt levels at around US$818m including long-term debt. At this stable level of debt, OSK currently has US$455m remaining in cash and short-term investments , ready to deploy into the business. Moreover, OSK has generated cash from operations of US$436m in the last twelve months, leading to an operating cash to total debt ratio of 53%, signalling that OSK’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OSK’s case, it is able to generate 0.53x cash from its debt capital.
Can OSK pay its short-term liabilities?
With current liabilities at US$1.7b, it appears that the company has been able to meet these commitments with a current assets level of US$3.3b, leading to a 1.93x current account ratio. Usually, for Machinery companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does OSK face the risk of succumbing to its debt-load?
OSK’s level of debt is appropriate relative to its total equity, at 33%. OSK is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether OSK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In OSK’s, case, the ratio of 11.72x 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.
OSK’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure OSK has company-specific issues impacting its capital structure decisions. You should continue to research Oshkosh to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OSK’s future growth? Take a look at our free research report of analyst consensus for OSK’s outlook.
- Valuation: What is OSK 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 OSK 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.