There are a number of reasons that attract investors towards large-cap companies such as Masco Corporation (NYSE:MAS), with a market cap of US$12.22B. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, its financial health remains the key to continued success. Today we will look at Masco’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MAS here. See our latest analysis for Masco
How does MAS’s operating cash flow stack up against its debt?
MAS’s debt level has been constant at around US$3.09B over the previous year – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$1.30B , ready to deploy into the business. On top of this, MAS has produced cash from operations of US$751.00M in the last twelve months, resulting in an operating cash to total debt ratio of 24.34%, meaning that MAS’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MAS’s case, it is able to generate 0.24x cash from its debt capital.
Can MAS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$1.63B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$3.22B, with a current ratio of 1.97x. Usually, for Building companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can MAS service its debt comfortably?
Since equity is smaller than total debt levels, Masco is considered to have high leverage. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can check to see whether MAS is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For MAS, the ratio of 4.31x suggests that interest is well-covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like MAS are considered a risk-averse investment.
MAS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MAS’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Masco to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MAS’s future growth? Take a look at our free research report of analyst consensus for MAS’s outlook.
- Valuation: What is MAS 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 MAS 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.