Mid-caps stocks, like Skechers U.S.A., Inc. (NYSE:SKX) with a market capitalization of US$5.4b, 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. Today we will look at SKX’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SKX here.
How does SKX’s operating cash flow stack up against its debt?
Over the past year, SKX has ramped up its debt from US$81m to US$97m , which accounts for long term debt. With this growth in debt, SKX’s cash and short-term investments stands at US$972m , ready to deploy into the business. Additionally, SKX has produced US$569m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 586%, indicating that SKX’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SKX’s case, it is able to generate 5.86x cash from its debt capital.
Can SKX pay its short-term liabilities?
At the current liabilities level of US$850m, it seems that the business has been able to meet these commitments with a current assets level of US$2.5b, leading to a 2.91x current account ratio. Generally, for Luxury companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can SKX service its debt comfortably?
With a debt-to-equity ratio of 4.4%, SKX’s debt level is relatively low. This range is considered safe as SKX is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
SKX’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 SKX has company-specific issues impacting its capital structure decisions. I recommend you continue to research Skechers U.S.A to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SKX’s future growth? Take a look at our free research report of analyst consensus for SKX’s outlook.
- Valuation: What is SKX 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 SKX 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.
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