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Stocks with market capitalization between $2B and $10B, such as Thor Industries, Inc. (NYSE:THO) with a size of US$3.6b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine THO’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into THO here.
Does THO face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Thor Industries has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with THO, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does THO’s liquid assets cover its short-term commitments?
Since Thor Industries doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at THO’s US$751m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$1.2b, with a current ratio of 1.66x. The current ratio is calculated by dividing current assets by current liabilities. For Auto companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
THO has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, but some degree of debt could also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for THO's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Thor Industries to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for THO’s future growth? Take a look at our free research report of analyst consensus for THO’s outlook.
- Valuation: What is THO 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 THO 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 email@example.com. 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.