Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Nordson Corporation (NASDAQ:NDSN), with a market cap of US$7.5b, are often out of the spotlight. 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. NDSN’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NDSN here.
NDSN’s Debt (And Cash Flows)
NDSN has shrunk its total debt levels in the last twelve months, from US$1.6b to US$1.4b – this includes long-term debt. With this debt payback, NDSN’s cash and short-term investments stands at US$86m to keep the business going. Additionally, NDSN has produced cash from operations of US$452m in the last twelve months, resulting in an operating cash to total debt ratio of 33%, indicating that NDSN’s current level of operating cash is high enough to cover debt.
Does NDSN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$324m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.67x. The current ratio is the number you get when you divide current assets by current liabilities. For Machinery 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.
Does NDSN face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 99%, NDSN 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In NDSN’s case, the ratio of 9.5x 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.
Although NDSN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for NDSN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Nordson to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NDSN’s future growth? Take a look at our free research report of analyst consensus for NDSN’s outlook.
- Valuation: What is NDSN 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 NDSN 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.