Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Quaker Chemical Corporation (NYSE:KWR), with a market cap of US$2.8b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. KWR’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 KWR here.
How much cash does KWR generate through its operations?
Over the past year, KWR has reduced its debt from US$73m to US$53m , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$100m for investing into the business. Moreover, KWR has generated cash from operations of US$75m during the same period of time, leading to an operating cash to total debt ratio of 142%, signalling that KWR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KWR’s case, it is able to generate 1.42x cash from its debt capital.
Does KWR’s liquid assets cover its short-term commitments?
With current liabilities at US$157m, it appears that the company has been able to meet these commitments with a current assets level of US$428m, leading to a 2.72x current account ratio. For Chemicals companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does KWR face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 12%, KWR’s debt level may be seen as prudent. KWR is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether KWR 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 KWR’s, case, the ratio of 24.33x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as KWR’s high interest coverage is seen as responsible and safe practice.
KWR’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how KWR has been performing in the past. I recommend you continue to research Quaker Chemical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KWR’s future growth? Take a look at our free research report of analyst consensus for KWR’s outlook.
- Valuation: What is KWR 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 KWR 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 email@example.com.