Yahoo Finance Why Dorman Products Inc (NASDAQ:DORM) Is A Financially Healthy Company
Mid-caps stocks, like Dorman Products Inc (NASDAQ:DORM) with a market capitalization of US$2.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine DORM’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into DORM here.
Check out our latest analysis for Dorman Products
Is DORM’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Dorman Products has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with DORM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does DORM’s liquid assets cover its short-term commitments?
Since Dorman Products doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$123m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$585m, leading to a 4.77x current account ratio. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue DORM could be holding too much capital in a low-return investment environment.
Next Steps:
DORM has zero-debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, however, some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure DORM has company-specific issues impacting its capital structure decisions. I suggest you continue to research Dorman Products to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DORM’s future growth? Take a look at our free research report of analyst consensus for DORM’s outlook.
Valuation: What is DORM 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 DORM 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.