Wolverine World Wide Inc (NYSE:WWW): Time For A Financial Health Check
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Wolverine World Wide Inc (NYSE:WWW), with a market cap of US$2.70B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine WWW’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into WWW here. Check out our latest analysis for Wolverine World Wide
Does WWW generate an acceptable amount of cash through operations?
WWW has sustained its debt level by about US$782.60M over the last 12 months – this includes both the current and long-term debt. At this current level of debt, WWW’s cash and short-term investments stands at US$481.00M , ready to deploy into the business. Additionally, WWW has produced US$202.70M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 25.90%, signalling that WWW’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WWW’s case, it is able to generate 0.26x cash from its debt capital.
Can WWW meet its short-term obligations with the cash in hand?
Looking at WWW’s most recent US$362.30M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$1.07B, leading to a 2.97x current account ratio. Generally, for Luxury companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does WWW face the risk of succumbing to its debt-load?
With debt reaching 81.93% of equity, WWW may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if WWW’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For WWW, the ratio of 5.43x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
WWW’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around WWW’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure WWW has company-specific issues impacting its capital structure decisions. You should continue to research Wolverine World Wide to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for WWW’s future growth? Take a look at our free research report of analyst consensus for WWW’s outlook.
Valuation: What is WWW 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 WWW 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 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.