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Has Brady Corporation (NYSE:BRC) Got Enough Cash?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Brady Corporation (NYSE:BRC), with a market cap of US$2.14b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine BRC’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BRC here.

View our latest analysis for Brady

How does BRC’s operating cash flow stack up against its debt?

BRC’s debt levels have fallen from US$138.0m to US$58.2m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, BRC currently has US$130.9m remaining in cash and short-term investments for investing into the business. On top of this, BRC has generated US$142.1m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 244%, signalling that BRC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BRC’s case, it is able to generate 2.44x cash from its debt capital.

Can BRC pay its short-term liabilities?

With current liabilities at US$181.4m, it appears that the company has been able to meet these obligations given the level of current assets of US$425.1m, with a current ratio of 2.34x. For Commercial Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NYSE:BRC Historical Debt September 13th 18
NYSE:BRC Historical Debt September 13th 18

Is BRC’s debt level acceptable?

With debt at 7.9% of equity, BRC may be thought of as having low leverage. BRC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if BRC’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 BRC, the ratio of 60.85x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

BRC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for BRC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Brady to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BRC’s future growth? Take a look at our free research report of analyst consensus for BRC’s outlook.

  2. Valuation: What is BRC 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 BRC is currently mispriced by the market.

  3. 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.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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