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Stocks with market capitalization between $2B and $10B, such as Worthington Industries, Inc. (NYSE:WOR) with a size of US$2.1b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at WOR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WOR here.
WOR’s Debt (And Cash Flows)
WOR has sustained its debt level by about US$749m over the last 12 months which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$113m , ready to be used for running the business. Additionally, WOR has generated US$206m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 27%, signalling that WOR’s debt is appropriately covered by operating cash.
Can WOR pay its short-term liabilities?
At the current liabilities level of US$565m, it seems that the business has been able to meet these commitments with a current assets level of US$1.2b, leading to a 2.13x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Metals and Mining companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is WOR’s debt level acceptable?
WOR is a relatively highly levered company with a debt-to-equity of 77%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if WOR’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 WOR, the ratio of 4.17x 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.
Although WOR’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 WOR’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for WOR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Worthington Industries to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WOR’s future growth? Take a look at our free research report of analyst consensus for WOR’s outlook.
- Valuation: What is WOR 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 WOR 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 firstname.lastname@example.org. 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.