Stocks with market capitalization between $2B and $10B, such as Lancaster Colony Corporation (NASDAQ:LANC) with a size of US$4.0b, 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. This article will examine LANC’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 LANC here.
Can LANC service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Lancaster Colony has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with LANC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can LANC pay its short-term liabilities?
Since Lancaster Colony doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$110m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.33x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
LANC has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt may also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how LANC has performed in the past. I suggest you continue to research Lancaster Colony to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LANC’s future growth? Take a look at our free research report of analyst consensus for LANC’s outlook.
- Valuation: What is LANC 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 LANC 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 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.