Investors are always looking for growth in small-cap stocks like Boise Cascade Company (NYSE:BCC), with a market cap of US$1.0b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into BCC here.
Does BCC Produce Much Cash Relative To Its Debt?
BCC has built up its total debt levels in the last twelve months, from US$438m to US$461m , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$192m to keep the business going. On top of this, BCC has generated US$164m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 35%, indicating that BCC’s debt is appropriately covered by operating cash.
Does BCC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$370m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.67x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Forestry companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is BCC’s debt level acceptable?
BCC is a relatively highly levered company with a debt-to-equity of 69%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can test if BCC’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 BCC, the ratio of 5.79x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as BCC’s high interest coverage is seen as responsible and safe practice.
Although BCC’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. Keep in mind I haven’t considered other factors such as how BCC has been performing in the past. You should continue to research Boise Cascade to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BCC’s future growth? Take a look at our free research report of analyst consensus for BCC’s outlook.
- Valuation: What is BCC 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 BCC 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.
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