Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Tech Data Corporation (NASDAQ:TECD), with a market cap of US$3.39b, 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 TECD’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TECD here.
How much cash does TECD generate through its operations?
TECD has shrunken its total debt levels in the last twelve months, from US$2.29b to US$1.62b – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$345.6m for investing into the business. Moreover, TECD has generated cash from operations of US$305.1m during the same period of time, leading to an operating cash to total debt ratio of 18.8%, signalling that TECD’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TECD’s case, it is able to generate 0.19x cash from its debt capital.
Does TECD’s liquid assets cover its short-term commitments?
At the current liabilities level of US$6.83b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.31x. Generally, for Electronic companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does TECD face the risk of succumbing to its debt-load?
TECD is a relatively highly levered company with a debt-to-equity of 56.5%. 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 TECD’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 TECD, the ratio of 4.68x 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.
TECD’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure TECD has company-specific issues impacting its capital structure decisions. I suggest you continue to research Tech Data to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TECD’s future growth? Take a look at our free research report of analyst consensus for TECD’s outlook.
- Valuation: What is TECD 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 TECD 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 firstname.lastname@example.org.