Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Quaker Chemical Corporation (NYSE:KWR), with a market cap of US$2.7b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at KWR’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 Quaker Chemical’s financial health, so you should conduct further analysis into KWR here.
How much cash does KWR generate through its operations?
KWR has shrunken its total debt levels in the last twelve months, from US$73m to US$53m , which is made up of current and long term debt. With this debt payback, KWR currently has US$100m remaining in cash and short-term investments for investing into the business. Additionally, KWR has generated cash from operations of US$75m over the same time period, leading to an operating cash to total debt ratio of 142%, indicating that KWR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In KWR’s case, it is able to generate 1.42x cash from its debt capital.
Does KWR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$157m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$428m, with a current ratio of 2.72x. For Chemicals 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.
Can KWR service its debt comfortably?
With a debt-to-equity ratio of 12%, KWR’s debt level may be seen as prudent. KWR is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if KWR’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 KWR, the ratio of 23.96x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as KWR’s high interest coverage is seen as responsible and safe practice.
KWR’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for KWR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Quaker Chemical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KWR’s future growth? Take a look at our free research report of analyst consensus for KWR’s outlook.
- Valuation: What is KWR 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 KWR 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 firstname.lastname@example.org.