Yahoo Finance How Financially Strong Is The Weir Group PLC (LON:WEIR)?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as The Weir Group PLC (LSE:WEIR), with a market capitalization of UK£5.13B, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine WEIR’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WEIR here. View our latest analysis for Weir Group
Does WEIR generate an acceptable amount of cash through operations?
WEIR’s debt level has been constant at around UK£1.13B over the previous year – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at UK£284.60M for investing into the business. Additionally, WEIR has produced cash from operations of UK£128.40M during the same period of time, leading to an operating cash to total debt ratio of 11.38%, meaning that WEIR’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WEIR’s case, it is able to generate 0.11x cash from its debt capital.
Can WEIR meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£1.11B liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.39x. Usually, for Machinery companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does WEIR face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 76.66%, WEIR can be considered as an above-average leveraged company. 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 WEIR’s case, the ratio of 6.06x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving WEIR ample headroom to grow its debt facilities.
Next Steps:
WEIR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how WEIR has been performing in the past. You should continue to research Weir Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WEIR’s future growth? Take a look at our free research report of analyst consensus for WEIR’s outlook.
Valuation: What is WEIR 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 WEIR 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 pass 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.
