Yahoo Finance Is Wm Morrison Supermarkets PLC (LON:MRW) As Strong As Its Balance Sheet Indicates?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Wm Morrison Supermarkets PLC (LSE:MRW), with a market capitalization of UK£5.78B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at MRW’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into MRW here. View our latest analysis for Wm Morrison Supermarkets
Does MRW generate enough cash through operations?
MRW’s debt levels have fallen from UK£1.56B to UK£1.33B over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, MRW currently has UK£327.00M remaining in cash and short-term investments , ready to deploy into the business. On top of this, MRW has produced UK£744.00M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 55.90%, signalling that MRW’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 MRW’s case, it is able to generate 0.56x cash from its debt capital.
Can MRW meet its short-term obligations with the cash in hand?
With current liabilities at UK£3.08B, the company is not able to meet these obligations given the level of current assets of UK£1.28B, with a current ratio of 0.42x below the prudent level of 3x.
Does MRW face the risk of succumbing to its debt-load?
With debt at 29.29% of equity, MRW may be thought of as appropriately levered. MRW is not taking on too much debt commitment, which may be constraining for future growth. We can test if MRW’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For MRW, the ratio of 7.9x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as MRW’s high interest coverage is seen as responsible and safe practice.
Next Steps:
MRW has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for MRW’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Wm Morrison Supermarkets to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MRW’s future growth? Take a look at our free research report of analyst consensus for MRW’s outlook.
Valuation: What is MRW 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 MRW 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.
