Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like United Natural Foods Inc (NASDAQ:UNFI), with a market cap of US$2.21B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine UNFI’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into UNFI here. Check out our latest analysis for United Natural Foods

Does UNFI generate enough cash through operations?

Over the past year, UNFI has reduced its debt from US$606.03M to US$385.91M , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$15.41M , ready to deploy into the business. On top of this, UNFI has generated cash from operations of US$280.78M in the last twelve months, resulting in an operating cash to total debt ratio of 72.76%, meaning that UNFI’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In UNFI’s case, it is able to generate 0.73x cash from its debt capital.

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

At the current liabilities level of US$703.99M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$1.66B, leading to a 2.36x current account ratio. Usually, for Consumer Retailing companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

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

UNFI’s level of debt is appropriate relative to its total equity, at 26.17%. This range is considered safe as UNFI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if UNFI’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 UNFI, the ratio of 14.75x 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.