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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Floor & Decor Holdings, Inc. (NYSE:FND), with a market cap of US$3.6b, are often out of the spotlight. 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. This article will examine FND’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. 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.
FND’s Debt (And Cash Flows)
FND’s debt levels surged from US$173m to US$904m over the last 12 months , which accounts for long term debt. With this growth in debt, FND’s cash and short-term investments stands at US$451k , ready to be used for running the business. Moreover, FND has produced cash from operations of US$172m over the same time period, resulting in an operating cash to total debt ratio of 19%, signalling that FND’s current level of operating cash is not high enough to cover debt.
Can FND meet its short-term obligations with the cash in hand?
With current liabilities at US$398m, it seems that the business has been able to meet these obligations given the level of current assets of US$527m, with a current ratio of 1.32x. The current ratio is calculated by dividing current assets by current liabilities. 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?
With a debt-to-equity ratio of 24%, FND’s debt level may be seen as prudent. FND is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether FND 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 FND’s, case, the ratio of 13.38x 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 low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure FND has company-specific issues impacting its capital structure decisions. I suggest you 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 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.