Is Taylor Morrison Home Corporation (NYSE:TMHC) A Financially Sound Company?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Taylor Morrison Home Corporation (NYSE:TMHC), with a market cap of US$2.1b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at TMHC’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 TMHC here.
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How does TMHC’s operating cash flow stack up against its debt?
TMHC’s debt level has been constant at around US$1.5b over the previous year which accounts for long term debt. At this current level of debt, TMHC’s cash and short-term investments stands at US$384m , ready to deploy into the business. On top of this, TMHC has generated cash from operations of US$309m during the same period of time, leading to an operating cash to total debt ratio of 21%, signalling that TMHC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TMHC’s case, it is able to generate 0.21x cash from its debt capital.
Does TMHC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$357m, it seems that the business has been able to meet these commitments with a current assets level of US$3.9b, leading to a 11.02x current account ratio. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Is TMHC’s debt level acceptable?
TMHC is a relatively highly levered company with a debt-to-equity of 62%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
Although TMHC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure TMHC has company-specific issues impacting its capital structure decisions. You should continue to research Taylor Morrison Home to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TMHC’s future growth? Take a look at our free research report of analyst consensus for TMHC’s outlook.
Valuation: What is TMHC 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 TMHC 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 editorial-team@simplywallst.com.
