How Nucor Corp Is Stacking the Deck Against the Competition
Diversified U.S. steel giant Nucor Corp. (NYSE: NUE) is built on a solid financial foundation. That gives it the financial flexibility it needs to not only survive industry downturns, but also use those rough patches in a highly cyclical industry to its advantage. And that's exactly what it's been doing during this downturn, stacking the deck against its steel industry competition.
If you build a house on sand it won't stand the test of time because the earth beneath it will slip away. If you build a house on solid rock, however, it can last for generations. When it comes to corporations, that foundation is the balance sheet. And Nucor is built on very solid ground.
For example, long-term debt makes up only around 25% of the steel maker's capital structure. The company's current ratio, a measure of how well it can pay its near-term bills, is around 2.1 times. Interest expense ate up roughly 8% of operating profit in the second quarter. Compare that to United States Steel Company (NYSE: X), where interest expense was about 17% of operating profit in the second quarter, long-term debt made up roughly 50% of the capital structure, and the current ratio is a solid, but less robust, 1.7. It's not that U.S. Steel is in bad financial shape, but it isn't nearly as well grounded as Nucor.
Source: Fool.com
