Has Taylor Wimpey plc (LON:TW.) Got Enough Cash To Cover Its Short-Term Obligations?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Taylor Wimpey plc (LSE:TW.), with a market cap of £6.18B, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. TW.’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 TW. here. See our latest analysis for Taylor Wimpey
How does TW.’s operating cash flow stack up against its debt?
TW.’s debt levels have fallen from £100.0M to £85.5M over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, TW.’s cash and short-term investments stands at £450.2M for investing into the business. Additionally, TW. has generated £537.7M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 628.89%, indicating that TW.’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TW.’s case, it is able to generate 6.29x cash from its debt capital.
Does TW.’s liquid assets cover its short-term commitments?
Looking at TW.’s most recent £1,077.7M liabilities, the company has been able to meet these commitments with a current assets level of £4,525.8M, leading to a 4.2x current account ratio. However, anything above 3x is considered high and could mean that TW. has too much idle capital in low-earning investments.
Does TW. face the risk of succumbing to its debt-load?
With debt at 3.16% of equity, TW. may be thought of as having low leverage. TW. is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether TW. is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TW.’s, case, the ratio of 109.67x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving TW. ample headroom to grow its debt facilities.
Next Steps:
TW.’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 exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how TW. has been performing in the past. I suggest you continue to research Taylor Wimpey to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for TW.’s future growth? Take a look at our free research report of analyst consensus for TW.’s outlook.
2. Valuation: What is TW. 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 TW. is currently mispriced by the market.
3. 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 pass 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.
