Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Seaspan Corporation (NYSE:SSW), with a market cap of US$2.1b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. SSW’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SSW here.
Does SSW Produce Much Cash Relative To Its Debt?
SSW's debt levels surged from US$4.4b to US$5.0b over the last 12 months , which accounts for long term debt. With this growth in debt, SSW currently has US$626m remaining in cash and short-term investments to keep the business going. Additionally, SSW has generated US$537m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 11%, signalling that SSW’s debt is not covered by operating cash.
Does SSW’s liquid assets cover its short-term commitments?
Looking at SSW’s US$1b in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.95x. The current ratio is calculated by dividing current assets by current liabilities.
Can SSW service its debt comfortably?
With total debt exceeding equity, SSW is considered a highly levered 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 SSW’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 SSW, the ratio of 2.22x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
SSW’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. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven't considered other factors such as how SSW has been performing in the past. I recommend you continue to research Seaspan to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SSW’s future growth? Take a look at our free research report of analyst consensus for SSW’s outlook.
- Valuation: What is SSW 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 SSW 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.
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 email@example.com. 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.