Stocks with market capitalization between $2B and $10B, such as John Wood Group PLC (LON:WG.) with a size of US$4.43b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. WG.’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 John Wood Group’s financial health, so you should conduct further analysis into WG. here. View out our latest analysis for John Wood Group
Does WG. produce enough cash relative to debt?
WG. has built up its total debt levels in the last twelve months, from US$928.60m to US$2.93b , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.26b for investing into the business. Additionally, WG. has generated cash from operations of US$150.40m in the last twelve months, leading to an operating cash to total debt ratio of 5.13%, meaning that WG.’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In WG.’s case, it is able to generate 0.051x cash from its debt capital.
Does WG.’s liquid assets cover its short-term commitments?
Looking at WG.’s most recent US$3.24b liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$4.05b, leading to a 1.25x current account ratio. For Energy Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can WG. service its debt comfortably?
With debt reaching 58.92% of equity, WG. may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since WG. is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
WG.’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure WG. has company-specific issues impacting its capital structure decisions. I recommend you continue to research John Wood Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WG.’s future growth? Take a look at our free research report of analyst consensus for WG.’s outlook.
- Valuation: What is WG. 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 WG. 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.