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What does Tate & Lyle plc’s (LON:TATE) Balance Sheet Tell Us About Its Future?

Erna Eldridge

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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Tate & Lyle plc (LON:TATE), with a market cap of UK£3.2b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at TATE’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TATE here.

View our latest analysis for Tate & Lyle

How does TATE’s operating cash flow stack up against its debt?

TATE’s debt level has been constant at around UK£601m over the previous year which accounts for long term debt. At this current level of debt, the current cash and short-term investment levels stands at UK£284m , ready to deploy into the business. Moreover, TATE has generated cash from operations of UK£288m in the last twelve months, resulting in an operating cash to total debt ratio of 48%, signalling that TATE’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TATE’s case, it is able to generate 0.48x cash from its debt capital.

Can TATE meet its short-term obligations with the cash in hand?

Looking at TATE’s UK£489m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of UK£1.1b, with a current ratio of 2.22x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

LSE:TATE Historical Debt February 4th 19

Does TATE face the risk of succumbing to its debt-load?

TATE is a relatively highly levered company with a debt-to-equity of 43%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 TATE’s case, the ratio of 12.68x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as TATE’s high interest coverage is seen as responsible and safe practice.

Next Steps:

TATE’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. I admit this is a fairly basic analysis for TATE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tate & Lyle to get a more holistic view of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TATE’s future growth? Take a look at our free research report of analyst consensus for TATE’s outlook.
  2. Valuation: What is TATE 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 TATE is currently mispriced by the market.
  3. 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