Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Renishaw plc (LON:RSW) with a market-capitalization of UK£2.8b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. RSW’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. Don’t forget that this is a general and concentrated examination of Renishaw’s financial health, so you should conduct further analysis into RSW here.
Is RSW’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Renishaw, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with RSW, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can RSW meet its short-term obligations with the cash in hand?
Since Renishaw 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 RSW’s UK£108m in current liabilities, the company has been able to meet these commitments with a current assets level of UK£403m, leading to a 3.72x current account ratio. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
RSW has zero-debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, though, some level of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure RSW has company-specific issues impacting its capital structure decisions. You should continue to research Renishaw to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RSW’s future growth? Take a look at our free research report of analyst consensus for RSW’s outlook.
- Valuation: What is RSW 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 RSW 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 email@example.com.