Yahoo Finance Is Kohl's Corporation (NYSE:KSS) A Financially Sound Company?
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Mid-caps stocks, like Kohl's Corporation (NYSE:KSS) with a market capitalization of US$7.6b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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 KSS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Kohl's’s financial health, so you should conduct further analysis into KSS here.
See our latest analysis for Kohl's
Does KSS Produce Much Cash Relative To Its Debt?
KSS's debt levels surged from US$4.0b to US$6.0b over the last 12 months , which includes long-term debt. With this increase in debt, KSS currently has US$543m remaining in cash and short-term investments , ready to be used for running the business. Additionally, KSS has produced US$1.9b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 31%, indicating that KSS’s operating cash is sufficient to cover its debt.
Can KSS pay its short-term liabilities?
Looking at KSS’s US$2.8b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.66x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Multiline Retail companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is KSS’s debt level acceptable?
KSS is a relatively highly levered company with a debt-to-equity of 59%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether KSS 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 KSS's, case, the ratio of 5.86x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving KSS ample headroom to grow its debt facilities.
Next Steps:
KSS’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 KSS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Kohl's to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for KSS’s future growth? Take a look at our free research report of analyst consensus for KSS’s outlook.
Valuation: What is KSS 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 KSS 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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
