Mid-caps stocks, like Cleanaway Waste Management Limited (ASX:CWY) with a market capitalization of AU$3.5b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine CWY’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 CWY here.
How much cash does CWY generate through its operations?
CWY has built up its total debt levels in the last twelve months, from AU$370m to AU$725m , which accounts for long term debt. With this increase in debt, CWY currently has AU$52m remaining in cash and short-term investments , ready to deploy into the business. On top of this, CWY has generated cash from operations of AU$221m in the last twelve months, resulting in an operating cash to total debt ratio of 31%, indicating that CWY’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 CWY’s case, it is able to generate 0.31x cash from its debt capital.
Can CWY pay its short-term liabilities?
With current liabilities at AU$422m, it appears that the company has been able to meet these commitments with a current assets level of AU$474m, leading to a 1.12x current account ratio. For Commercial Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CWY service its debt comfortably?
CWY’s level of debt is appropriate relative to its total equity, at 29%. This range is considered safe as CWY is not taking on too much debt obligation, which may be constraining for future growth. We can test if CWY’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 CWY, the ratio of 8.88x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CWY ample headroom to grow its debt facilities.
CWY’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CWY’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Cleanaway Waste Management to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CWY’s future growth? Take a look at our free research report of analyst consensus for CWY’s outlook.
- Valuation: What is CWY 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 CWY 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 firstname.lastname@example.org.