Yahoo Movies What You Must Know About Weyco Group Inc’s (NASDAQ:WEYS) Financial Strength
The direct benefit for Weyco Group Inc (NASDAQ:WEYS), which sports a zero-debt capital structure, to include debt in its capital structure is the reduced cost of capital. However, the trade-off is WEYS will have to adhere to stricter debt covenants and have less financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean WEYS has outstanding financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
View our latest analysis for Weyco Group
Does WEYS’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on WEYS’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if WEYS is a high-growth company. WEYS delivered a negative revenue growth of -0.05%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can WEYS pay its short-term liabilities?
Since Weyco Group doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$16m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 8.08x. Having said that, many consider anything above 3x to be quite high and could mean that WEYS has too much idle capital in low-earning investments.
Next Steps:
WEYS is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around WEYS’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, its financial position may change. I admit this is a fairly basic analysis for WEYS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Weyco Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WEYS’s future growth? Take a look at our free research report of analyst consensus for WEYS’s outlook.
Valuation: What is WEYS 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 WEYS 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.
