Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Chemed Corporation (NYSE:CHE), with a market cap of US$4.4b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. CHE’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. Don’t forget that this is a general and concentrated examination of Chemed’s financial health, so you should conduct further analysis into CHE here.
Does CHE produce enough cash relative to debt?
CHE has built up its total debt levels in the last twelve months, from US$83m to US$130m , which includes long-term debt. With this increase in debt, CHE’s cash and short-term investments stands at US$67m , ready to deploy into the business. Moreover, CHE has generated US$202m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 155%, indicating that CHE’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 CHE’s case, it is able to generate 1.55x cash from its debt capital.
Can CHE pay its short-term liabilities?
With current liabilities at US$180m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.14x. Usually, for Healthcare companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CHE service its debt comfortably?
CHE’s level of debt is appropriate relative to its total equity, at 23%. This range is considered safe as CHE is not taking on too much debt obligation, which may be constraining for future growth. We can test if CHE’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 CHE, the ratio of 54.58x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as CHE’s high interest coverage is seen as responsible and safe practice.
CHE’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CHE has been performing in the past. You should continue to research Chemed to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CHE’s future growth? Take a look at our free research report of analyst consensus for CHE’s outlook.
- Valuation: What is CHE 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 CHE 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.