Mid-caps stocks, like USG Corporation (NYSE:USG) with a market capitalization of $5.17B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups, primarily due to seasoned executives running a lean corporate structure. I recommend you look at the following hurdles to assess USG’s financial health. View our latest analysis for USG

Can USG service its debt comfortably?

Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. USG’s debt-to-equity ratio stands at 54.34%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings (EBIT) at least three times its interest payments is considered financially sound. USG’s profits amply covers interest at 4.19 times, which is seen as relatively safe. Debtors may be willing to loan the company more money, giving USG ample headroom to grow its debt facilities.

Can USG pay its short-term liabilities?

Debt to equity ratio is an important aspect of financial strength. But if the company has a substantial amount of cash on its balance sheet, that should allay some fear of a debt overhang and increase the chance of meeting upcoming liabilities. We need to assess USG’s cash and other liquid assets against its upcoming expenses. Our analysis shows that USG does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.

Next Steps:

Are you a shareholder? Although USG’s debt level is towards the higher end of the spectrum, investors shouldn’t panic since its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since USG’s financial situation could change over time, You should continue researching market expectations for USG’s future growth on our free analysis platform.

Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. USG’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

To help readers see pass 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.