How Financially Strong Is Formula One Group (NASDAQ:FWON.K)?
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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Formula One Group (NASDAQ:FWON.K), with a market cap of US$8.7b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine FWON.K’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into FWON.K here.
Check out our latest analysis for Formula One Group
Does FWON.K Produce Much Cash Relative To Its Debt?
FWON.K has shrunk its total debt levels in the last twelve months, from US$5.6b to US$5.2b , which includes long-term debt. With this reduction in debt, FWON.K's cash and short-term investments stands at US$372m , ready to be used for running the business. Moreover, FWON.K has produced US$313m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 6.0%, indicating that FWON.K’s debt is not covered by operating cash.
Does FWON.K’s liquid assets cover its short-term commitments?
At the current liabilities level of US$629m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$566m, leading to a current ratio of 0.9x. The current ratio is the number you get when you divide current assets by current liabilities.
Does FWON.K face the risk of succumbing to its debt-load?
With debt reaching 96% of equity, FWON.K may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since FWON.K is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
FWON.K’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven't considered other factors such as how FWON.K has been performing in the past. You should continue to research Formula One Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for FWON.K’s future growth? Take a look at our free research report of analyst consensus for FWON.K’s outlook.
Valuation: What is FWON.K 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 FWON.K 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.
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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.
