Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Wm Morrison Supermarkets PLC (LON:MRW) with a market-capitalization of UK£5.3b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. MRW’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 MRW here.
Does MRW Produce Much Cash Relative To Its Debt?
Over the past year, MRW has maintained its debt levels at around UK£1.3b – this includes long-term debt. At this constant level of debt, MRW’s cash and short-term investments stands at UK£264m , ready to be used for running the business. On top of this, MRW has produced cash from operations of UK£712m in the last twelve months, resulting in an operating cash to total debt ratio of 55%, signalling that MRW’s debt is appropriately covered by operating cash.
Can MRW meet its short-term obligations with the cash in hand?
With current liabilities at UK£3.3b, it appears that the company may not have an easy time meeting these commitments with a current assets level of UK£1.4b, leading to a current ratio of 0.42x. The current ratio is the number you get when you divide current assets by current liabilities.
Is MRW’s debt level acceptable?
With debt at 28% of equity, MRW may be thought of as appropriately levered. MRW is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether MRW 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 MRW’s, case, the ratio of 10.22x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving MRW ample headroom to grow its debt facilities.
MRW’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure MRW has company-specific issues impacting its capital structure decisions. I suggest you continue to research Wm Morrison Supermarkets to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MRW’s future growth? Take a look at our free research report of analyst consensus for MRW’s outlook.
- Valuation: What is MRW 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 MRW 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.
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