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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Bio-Techne Corporation (NASDAQ:TECH), with a market capitalization of US$7.6b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at TECH’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into TECH here.
TECH’s Debt (And Cash Flows)
Over the past year, TECH has ramped up its debt from US$363m to US$551m , which includes long-term debt. With this growth in debt, TECH currently has US$157m remaining in cash and short-term investments to keep the business going. On top of this, TECH has generated US$173m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 31%, meaning that TECH’s debt is appropriately covered by operating cash.
Does TECH’s liquid assets cover its short-term commitments?
At the current liabilities level of US$87m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.35x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Is TECH’s debt level acceptable?
With debt reaching 50% of equity, TECH may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if TECH’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For TECH, the ratio of 9.56x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving TECH ample headroom to grow its debt facilities.
Although TECH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure TECH has company-specific issues impacting its capital structure decisions. You should continue to research Bio-Techne to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TECH’s future growth? Take a look at our free research report of analyst consensus for TECH’s outlook.
- Valuation: What is TECH 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 TECH 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.