The size of Stanley Black & Decker, Inc. (NYSE:SWK), a US$20b large-cap, often attracts investors seeking a reliable investment in the stock market. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the health of the financials determines whether the company continues to succeed. Let’s take a look at Stanley Black & Decker’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SWK here.
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Does SWK Produce Much Cash Relative To Its Debt?
SWK has built up its total debt levels in the last twelve months, from US$4.2b to US$5.7b , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$282m , ready to be used for running the business. On top of this, SWK has generated cash from operations of US$1.2b over the same time period, leading to an operating cash to total debt ratio of 21%, indicating that SWK’s debt is appropriately covered by operating cash.
Can SWK pay its short-term liabilities?
Looking at SWK’s US$5.8b in current liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.91x. The current ratio is calculated by dividing current assets by current liabilities.
Does SWK face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 72%, SWK can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus 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 SWK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For SWK, the ratio of 8.68x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes SWK and other large-cap investments thought to be safe.
At its current level of cash flow coverage, SWK has room for improvement to better cushion for events which may require debt repayment. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. I admit this is a fairly basic analysis for SWK’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Stanley Black & Decker to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SWK’s future growth? Take a look at our free research report of analyst consensus for SWK’s outlook.
- Valuation: What is SWK 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 SWK 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.
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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.