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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Helen of Troy Limited ( NASDAQ:HELE ), with a market cap of US$3.0b, 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 HELE’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 HELE here .
How much cash does HELE generate through its operations?
Over the past year, HELE has reduced its debt from US$426m to US$340m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$20m for investing into the business. Additionally, HELE has generated cash from operations of US$221m during the same period of time, resulting in an operating cash to total debt ratio of 65%, signalling that HELE’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HELE’s case, it is able to generate 0.65x cash from its debt capital.
Can HELE pay its short-term liabilities?
At the current liabilities level of US$335m, it appears that the company has been able to meet these obligations given the level of current assets of US$673m, with a current ratio of 2.01x. Usually, for Consumer Durables companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HELE face the risk of succumbing to its debt-load?
With debt at 33% of equity, HELE may be thought of as appropriately levered. This range is considered safe as HELE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if HELE’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 HELE, the ratio of 17.96x 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.
HELE has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how HELE has been performing in the past. I suggest you continue to research Helen of Troy to get a better picture of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for HELE’s future growth? Take a look at our free research report of analyst consensus for HELE’s outlook.
- Valuation : What is HELE 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 HELE 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. On rare occasion, data errors may occur. Thank you for reading.