Yahoo Finance What You Must Know About Tapestry, Inc.'s (NYSE:TPR) Financial Strength
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Tapestry, Inc. (NYSE:TPR), with a market cap of US$9.4b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at TPR’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into TPR here.
Check out our latest analysis for Tapestry
TPR’s Debt (And Cash Flows)
Over the past year, TPR has reduced its debt from US$2.7b to US$1.6b , which includes long-term debt. With this debt repayment, TPR currently has US$1.5b remaining in cash and short-term investments to keep the business going. Additionally, TPR has produced cash from operations of US$1.2b over the same time period, leading to an operating cash to total debt ratio of 73%, meaning that TPR’s current level of operating cash is high enough to cover debt.
Does TPR’s liquid assets cover its short-term commitments?
With current liabilities at US$1.1b, it seems that the business has been able to meet these obligations given the level of current assets of US$2.8b, with a current ratio of 2.62x. The current ratio is calculated by dividing current assets by current liabilities. For Luxury companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does TPR face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 46%, TPR can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether TPR 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 TPR's, case, the ratio of 15.66x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving TPR ample headroom to grow its debt facilities.
Next Steps:
Although TPR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how TPR has been performing in the past. I suggest you continue to research Tapestry to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TPR’s future growth? Take a look at our free research report of analyst consensus for TPR’s outlook.
Valuation: What is TPR 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 TPR 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
