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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Minerals Technologies Inc. (NYSE:MTX) with a market-capitalization of US$2.2b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at MTX’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MTX here.
Does MTX Produce Much Cash Relative To Its Debt?
Over the past year, MTX has ramped up its debt from US$970m to US$1.0b , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$213m , ready to be used for running the business. Moreover, MTX has generated cash from operations of US$204m during the same period of time, leading to an operating cash to total debt ratio of 20%, signalling that MTX’s operating cash is less than its debt.
Does MTX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$382m, it seems that the business has been able to meet these commitments with a current assets level of US$876m, leading to a 2.29x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Chemicals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does MTX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 74%, MTX can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MTX’s case, the ratio of 5.53x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
MTX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how MTX has been performing in the past. I recommend you continue to research Minerals Technologies to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MTX’s future growth? Take a look at our free research report of analyst consensus for MTX’s outlook.
- Valuation: What is MTX 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 MTX 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.