Has Texas Roadhouse Inc (TXRH) Got Enough Cash To Cover Its Short-Term Obligations?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Texas Roadhouse Inc (NASDAQ:TXRH) with a market capitalization of USD $3.47B, rarely draw their attention from analysts and investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I recommend you look at the following hurdles to assess TXRH’s financial health. See our latest analysis for TXRH
Can TXRH service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of TXRH, the debt-to-equity ratio is 6.26%, which indicates that the company faces low risk associated with debt. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings at least three times its interest payments is considered financially sound. TXRH’s profits amply covers interest at 124.82 times, which is seen as relatively safe. Debtors may be willing to loan the company more money, giving TXRH ample headroom to grow its debt facilities.
Does TXRH’s liquid assets cover its short-term commitments?
A different measure of financial health is measured by its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. In order to measure liquidity, we must compare TXRH’s current assets with its upcoming liabilities. Our analysis shows that TXRH does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
Next Steps:
Are you a shareholder? TXRH’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. Given that TXRH’s financial situation may be different in the future, I suggest researching market expectations for TXRH’s future growth on our free analysis platform.
Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. TXRH’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.
