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Stocks with market capitalization between $2B and $10B, such as Herman Miller, Inc. (NASDAQ:MLHR) with a size of US$2.1b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. MLHR’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 MLHR here.
Does MLHR Produce Much Cash Relative To Its Debt?
MLHR has sustained its debt level by about US$285m over the last 12 months – this includes long-term debt. At this constant level of debt, MLHR’s cash and short-term investments stands at US$122m to keep the business going. Additionally, MLHR has produced US$186m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 65%, meaning that MLHR’s operating cash is sufficient to cover its debt.
Can MLHR pay its short-term liabilities?
At the current liabilities level of US$419m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.48x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is MLHR’s debt level acceptable?
MLHR’s level of debt is appropriate relative to its total equity, at 39%. MLHR is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MLHR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In MLHR’s, case, the ratio of 25.22x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as MLHR’s high interest coverage is seen as responsible and safe practice.
MLHR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure MLHR has company-specific issues impacting its capital structure decisions. You should continue to research Herman Miller to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MLHR’s future growth? Take a look at our free research report of analyst consensus for MLHR’s outlook.
- Valuation: What is MLHR 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 MLHR 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 firstname.lastname@example.org. 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.