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Mid-caps stocks, like Anixter International Inc. (NYSE:AXE) with a market capitalization of US$2.0b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. AXE’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AXE here.
How does AXE’s operating cash flow stack up against its debt?
Over the past year, AXE has maintained its debt levels at around US$1.3b including long-term debt. At this stable level of debt, AXE currently has US$81m remaining in cash and short-term investments , ready to deploy into the business. On top of this, AXE has produced US$138m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 11%, indicating that AXE’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AXE’s case, it is able to generate 0.11x cash from its debt capital.
Can AXE pay its short-term liabilities?
With current liabilities at US$1.6b, the company has been able to meet these obligations given the level of current assets of US$3.2b, with a current ratio of 1.95x. Usually, for Electronic companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AXE’s debt level acceptable?
With a debt-to-equity ratio of 80%, AXE 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. We can check to see whether AXE 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 AXE’s, case, the ratio of 4.27x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AXE ample headroom to grow its debt facilities.
AXE’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. This is only a rough assessment of financial health, and I’m sure AXE has company-specific issues impacting its capital structure decisions. You should continue to research Anixter International to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AXE’s future growth? Take a look at our free research report of analyst consensus for AXE’s outlook.
- Valuation: What is AXE 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 AXE 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.