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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Floor & Decor Holdings, Inc. (NYSE:FND), with a market cap of US$3.7b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at FND’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into FND here.
How does FND’s operating cash flow stack up against its debt?
FND has shrunken its total debt levels in the last twelve months, from US$189m to US$145m – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$644k for investing into the business. Additionally, FND has generated US$186m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 128%, signalling that FND’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 FND’s case, it is able to generate 1.28x cash from its debt capital.
Does FND’s liquid assets cover its short-term commitments?
With current liabilities at US$404m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.38x. Usually, for Specialty Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does FND face the risk of succumbing to its debt-load?
FND’s level of debt is appropriate relative to its total equity, at 25%. This range is considered safe as FND is not taking on too much debt obligation, which may be constraining for future growth. We can test if FND’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 FND, the ratio of 14.72x suggests that interest is comfortably 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.
FND’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for FND’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Floor & Decor Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FND’s future growth? Take a look at our free research report of analyst consensus for FND’s outlook.
- Valuation: What is FND 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 FND 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.