What does Ashland Global Holdings Inc.'s (NYSE:ASH) Balance Sheet Tell Us About Its Future?
Mid-caps stocks, like Ashland Global Holdings Inc. (NYSE:ASH) with a market capitalization of US$5.0b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. ASH’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 Ashland Global Holdings’s financial health, so you should conduct further analysis into ASH here.
See our latest analysis for Ashland Global Holdings
ASH’s Debt (And Cash Flows)
Over the past year, ASH has reduced its debt from US$2.9b to US$2.5b – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$149m to keep the business going. Additionally, ASH has generated cash from operations of US$270m over the same time period, leading to an operating cash to total debt ratio of 11%, meaning that ASH’s debt is not covered by operating cash.
Can ASH pay its short-term liabilities?
At the current liabilities level of US$906m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.2x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is ASH’s debt level acceptable?
With a debt-to-equity ratio of 76%, ASH can be considered as an above-average 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 check to see whether ASH 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 ASH's, case, the ratio of 2.74x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
Although ASH’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. Since there is also no concerns around ASH's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ASH's financial health. Other important fundamentals need to be considered alongside. You should continue to research Ashland Global Holdings to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASH’s future growth? Take a look at our free research report of analyst consensus for ASH’s outlook.
- Valuation: What is ASH 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 ASH 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.