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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Renishaw plc (LON:RSW), with a market cap of UK£3.2b, 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. RSW’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 Renishaw’s financial health, so you should conduct further analysis into RSW here.
Can RSW service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Renishaw has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with RSW, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does RSW’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Renishaw has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at RSW’s UK£98m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.99x. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
RSW has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure RSW has company-specific issues impacting its capital structure decisions. I suggest you continue to research Renishaw to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RSW’s future growth? Take a look at our free research report of analyst consensus for RSW’s outlook.
- Valuation: What is RSW 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 RSW 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 email@example.com.