Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Helen of Troy Limited (NASDAQ:HELE) with a market-capitalization of US$2.9b, rarely draw their attention. 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. This article will examine HELE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HELE here.
HELE’s Debt (And Cash Flows)
HELE has shrunk its total debt levels in the last twelve months, from US$426m to US$340m – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$20m , ready to be used for running the business. Moreover, HELE has produced US$221m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 65%, signalling that HELE’s operating cash is sufficient to cover its debt.
Can HELE pay its short-term liabilities?
At the current liabilities level of US$335m, it appears that the company has been able to meet these commitments with a current assets level of US$673m, leading to a 2.01x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Consumer Durables companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can HELE service its debt comfortably?
With debt at 33% of equity, HELE may be thought of as appropriately levered. HELE is not taking on too much debt commitment, which may be constraining for future growth. We can test if HELE’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 HELE, the ratio of 17.96x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving HELE ample headroom to grow its debt facilities.
HELE’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for HELE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Helen of Troy to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HELE’s future growth? Take a look at our free research report of analyst consensus for HELE’s outlook.
- Valuation: What is HELE 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 HELE 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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