Mid-caps stocks, like WABCO Holdings Inc (NYSE:WBC) with a market capitalization of $8.32B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine WBC’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WBC here. View our latest analysis for WABCO Holdings
Does WBC generate an acceptable amount of cash through operations?
WBC’s debt levels surged from $503.7M to $959.1M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, WBC currently has $862.5M remaining in cash and short-term investments , ready to deploy into the business. Moreover, WBC has generated $405.4M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 42.27%, meaning that WBC’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WBC’s case, it is able to generate 0.42x cash from its debt capital.
Does WBC’s liquid assets cover its short-term commitments?
At the current liabilities level of $530.9M 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 3.53x. Though, a ratio greater than 3x may be considered as too high, as WBC could be holding too much capital in a low-return investment environment.
Does WBC face the risk of succumbing to its debt-load?Since total debt levels have outpaced equities, WBC is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if WBC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For WBC, the ratio of 26.07x suggests that interest is comfortably 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 WBC’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 WBC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research WABCO Holdings to get a better picture of the mid-cap by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for WBC’s future growth? Take a look at our free research report of analyst consensus for WBC’s outlook.
2. Valuation: What is WBC 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 WBC is currently mispriced by the market.
3. 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.