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Stocks with market capitalization between $2B and $10B, such as Trex Company, Inc. ( NYSE:TREX ) with a size of US$4.1b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. TREX’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TREX here .
Does TREX Produce Much Cash Relative To Its Debt?
TREX has sustained its debt level by about US$81m over the last 12 months , which is mainly comprised of near term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$7.9m to keep the business going. Moreover, TREX has produced US$126m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 157%, indicating that TREX’s operating cash is sufficient to cover its debt.
Does TREX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$107m, it seems that the business has been able to meet these obligations given the level of current assets of US$291m, with a current ratio of 2.73x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Building companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can TREX service its debt comfortably?
With a debt-to-equity ratio of 9.6%, TREX's debt level is relatively low. TREX is not taking on too much debt commitment, which may be constraining for future growth.
TREX’s high cash coverage and low 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 TREX's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Trex Company to get a better picture of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for TREX’s future growth? Take a look at our free research report of analyst consensus for TREX’s outlook.
- Valuation : What is TREX 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 TREX 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.