Mid-caps stocks, like Maple Leaf Foods Inc (TSX:MFI) with a market capitalization of CA$4.56B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. I recommend you look at the following hurdles to assess MFI’s financial health. See our latest analysis for Maple Leaf Foods
Does MFI face the risk of succumbing to its debt-load?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. The good news for investors is that Maple Leaf Foods has virtually no debt. This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with MFI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does MFI’s liquid assets cover its short-term commitments?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. We need to assess MFI’s cash and other liquid assets against its upcoming expenses. Our analysis shows that MFI does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Next Steps:
Are you a shareholder? MFI’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. Since MFI’s capital structure may differ over time, I encourage examining market expectations for MFI’s future growth on our free analysis platform.
Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. MFI’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.