Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as John Wood Group PLC (LSE:WG.), with a market cap of UK£3.69B, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at WG.’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WG. here. Check out our latest analysis for John Wood Group
How does WG.’s operating cash flow stack up against its debt?
Over the past year, WG. has ramped up its debt from US$928.60M to US$2.93B – this includes both the current and long-term debt. With this rise in debt, WG.’s cash and short-term investments stands at US$1.26B for investing into the business. Additionally, WG. has generated US$150.40M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 5.13%, signalling that WG.’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional 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.
Can WG. pay its short-term liabilities?
Looking at WG.’s most recent US$3.24B liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.25x. Usually, for Energy Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does WG. face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 58.92%, WG. can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since WG. is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
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. Keep in mind I haven’t considered other factors such as how WG. has been performing in the past. You should continue to research John Wood Group to get a more holistic view 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.