Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Ansell Limited (ASX:ANN), with a market capitalization of AU$3.50B, 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. Let’s take a look at ANN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into ANN here. See our latest analysis for Ansell

Does ANN generate an acceptable amount of cash through operations?

ANN’s debt level has been constant at around US$720.50M over the previous year – this includes both the current and long-term debt. At this current level of debt, ANN currently has US$316.60M remaining in cash and short-term investments for investing into the business. Moreover, ANN has generated cash from operations of US$216.20M in the last twelve months, leading to an operating cash to total debt ratio of 30.01%, signalling that ANN’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 ANN’s case, it is able to generate 0.3x cash from its debt capital.

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

Looking at ANN’s most recent US$362.70M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.06B, with a current ratio of 2.92x. Generally, for Medical Equipment companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

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

With debt at 36.13% of equity, ANN may be thought of as appropriately levered. This range is considered safe as ANN is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether ANN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ANN’s, case, the ratio of 11.35x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

ANN’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how ANN has been performing in the past. You should continue to research Ansell to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for ANN’s future growth? Take a look at our free research report of analyst consensus for ANN’s outlook.

2. Valuation: What is ANN 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 ANN 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 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.