Yahoo Finance Marks and Spencer Group plc (LON:MKS): Time For A Financial Health Check
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Marks and Spencer Group plc (LON:MKS), with a market cap of UK£4.89b, 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. Today we will look at MKS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MKS here.
Check out our latest analysis for Marks and Spencer Group
How much cash does MKS generate through its operations?
MKS’s debt levels have fallen from UK£2.23b to UK£1.80b over the last 12 months – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at UK£217.6m , ready to deploy into the business. Additionally, MKS has generated UK£849.8m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 47.3%, indicating that MKS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MKS’s case, it is able to generate 0.47x cash from its debt capital.
Does MKS’s liquid assets cover its short-term commitments?
At the current liabilities level of UK£1.83b liabilities, it appears that the company is not able to meet these obligations given the level of current assets of UK£1.32b, with a current ratio of 0.72x below the prudent level of 3x.
Can MKS service its debt comfortably?
With debt reaching 60.8% of equity, MKS may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In MKS’s case, the ratio of 7.58x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MKS’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although MKS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for MKS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Marks and Spencer Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MKS’s future growth? Take a look at our free research report of analyst consensus for MKS’s outlook.
Valuation: What is MKS 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 MKS 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 editorial-team@simplywallst.com.
