Yahoo Finance Is Cleanaway Waste Management Limited (ASX:CWY) As Strong As Its Balance Sheet Indicates?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Cleanaway Waste Management Limited (ASX:CWY), with a market cap of AU$3.6b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine CWY’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. Don’t forget that this is a general and concentrated examination of Cleanaway Waste Management’s financial health, so you should conduct further analysis into CWY here.
Check out our latest analysis for Cleanaway Waste Management
How much cash does CWY generate through its operations?
Over the past year, CWY has ramped up its debt from AU$370m to AU$725m , which comprises of short- and long-term debt. With this growth in debt, CWY’s cash and short-term investments stands at AU$52m for investing into the business. Moreover, CWY has produced cash from operations of AU$221m in the last twelve months, leading to an operating cash to total debt ratio of 31%, signalling that CWY’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 CWY’s case, it is able to generate 0.31x cash from its debt capital.
Can CWY pay its short-term liabilities?
Looking at CWY’s most recent AU$422m liabilities, the company has been able to meet these commitments with a current assets level of AU$474m, leading to a 1.12x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is CWY’s debt level acceptable?
With debt at 29% of equity, CWY may be thought of as appropriately levered. This range is considered safe as CWY is not taking on too much debt obligation, which may be constraining for future growth. We can test if CWY’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 CWY, the ratio of 8.88x suggests that interest is appropriately 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:
CWY’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CWY’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cleanaway Waste Management to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CWY’s future growth? Take a look at our free research report of analyst consensus for CWY’s outlook.
Valuation: What is CWY 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 CWY 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
