Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Brady Corporation (NYSE:BRC) with a market-capitalization of US$2.5b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at BRC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Brady’s financial health, so you should conduct further analysis into BRC here.
How does BRC’s operating cash flow stack up against its debt?
BRC’s debt levels have fallen from US$71m to US$52m over the last 12 months , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$202m , ready to deploy into the business. On top of this, BRC has generated US$145m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 281%, indicating that BRC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BRC’s case, it is able to generate 2.81x cash from its debt capital.
Does BRC’s liquid assets cover its short-term commitments?
Looking at BRC’s US$164m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.06x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can BRC service its debt comfortably?
BRC’s level of debt is low relative to its total equity, at 6.4%. This range is considered safe as BRC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether BRC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BRC’s, case, the ratio of 270x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BRC’s high interest coverage is seen as responsible and safe practice.
BRC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure BRC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Brady to get a better picture of the stock by looking at:
- 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.
- 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.
- 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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.