Investment Thesis
McGraw Hill demonstrates solid operational performance with strong profitability metrics (80.1% gross margin, 17.3% operating margin) and robust free cash flow generation ($416.3M, 25.4% FCF margin). However, the company carries significant leverage (3.36x Debt/Equity) with weak liquidity ratios (0.83x current, 0.70x quick), creating financial vulnerability despite strong cash generation.
Strengths
- Exceptional gross margin of 80.1% indicating strong pricing power and operational efficiency
- Substantial free cash flow of $416.3M with 25.4% FCF margin provides capital flexibility
- High operating margin of 17.3% demonstrates effective cost control and scale benefits
- Substantial cash balance of $514.4M provides liquidity buffer
Risks
- Elevated leverage ratio of 3.36x Debt/Equity with $2.6B long-term debt creates financial distress risk
- Weak liquidity position with current ratio of 0.83x and quick ratio of 0.70x below healthy thresholds
- Low net margin of 5.2% despite high gross margins suggests elevated operating expenses or interest burden
- Limited visibility on revenue and earnings growth trends (N/A YoY data)
Key Metrics to Watch
- Debt/Equity ratio trend and debt repayment progress
- Current and quick ratios improvement trajectory
- Year-over-year revenue and net income growth rates
- Operating cash flow sustainability and free cash flow conversion
- Interest coverage ratio and debt service capacity
Financial Metrics
Revenue
1.6B
Net Income
85.6M
EPS (Diluted)
$0.47
Free Cash Flow
416.3M
Total Assets
5.6B
Cash
514.4M
Profitability Ratios
Gross Margin
80.1%
Operating Margin
17.3%
Net Margin
5.2%
ROE
11.0%
ROA
1.5%
FCF Margin
25.4%
Balance Sheet & Liquidity
Current Ratio
0.83x
Quick Ratio
0.70x
Debt/Equity
3.36x
Debt/Assets
86.3%
Interest Coverage
N/A
Long-term Debt
2.6B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-04-01T22:32:12.491146 |
Data as of: 2025-12-31 |
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