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With a market capitalization of US$22b, TAL Education Group (NYSE:TAL) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for TAL, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does TAL Produce Much Cash Relative To Its Debt?
Over the past year, TAL has reduced its debt from US$236m to US$215m , which includes long-term debt. With this debt payback, TAL currently has US$1.5b remaining in cash and short-term investments to keep the business going. On top of this, TAL has produced US$194m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 90%, indicating that TAL’s debt is appropriately covered by operating cash.
Can TAL pay its short-term liabilities?
Looking at TAL’s US$1.2b in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. The current ratio is calculated by dividing current assets by current liabilities. For Consumer Services companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Is TAL’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. With a debt-to-equity ratio of 8.5%, TAL's debt level is relatively low. TAL is not taking on too much debt commitment, which may be constraining for future growth.
TAL’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure TAL has company-specific issues impacting its capital structure decisions. I suggest you continue to research TAL Education Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TAL’s future growth? Take a look at our free research report of analyst consensus for TAL’s outlook.
- Valuation: What is TAL 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 TAL 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 firstname.lastname@example.org. 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.