Yahoo Finance Is Signet Jewelers Limited’s (NYSE:SIG) Liquidity Good Enough?
Stocks with market capitalization between $2B and $10B, such as Signet Jewelers Limited (NYSE:SIG) with a size of US$3.26b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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 SIG’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 Signet Jewelers’s financial health, so you should conduct further analysis into SIG here.
See our latest analysis for Signet Jewelers
How does SIG’s operating cash flow stack up against its debt?
Over the past year, SIG has reduced its debt from US$1.44b to US$752.0m , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$153.9m , ready to deploy into the business. On top of this, SIG has produced US$1.91b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 254%, signalling that SIG’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In SIG’s case, it is able to generate 2.54x cash from its debt capital.
Can SIG pay its short-term liabilities?
Looking at SIG’s most recent US$1.11b liabilities, the company has been able to meet these obligations given the level of current assets of US$3.37b, with a current ratio of 3.04x. However, anything above 3x is considered high and could mean that SIG has too much idle capital in low-earning investments.
Does SIG face the risk of succumbing to its debt-load?
With debt at 30.0% of equity, SIG may be thought of as appropriately levered. This range is considered safe as SIG is not taking on too much debt obligation, which may be constraining for future growth. SIG’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
SIG’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SIG’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Signet Jewelers to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SIG’s future growth? Take a look at our free research report of analyst consensus for SIG’s outlook.
Valuation: What is SIG 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 SIG 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.
