Crown Holdings Inc (NYSE:CCK): Time For A Financial Health Check
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Crown Holdings Inc (NYSE:CCK) with a market-capitalization of US$7.32B, rarely draw their attention. 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. This article will examine CCK’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into CCK here. Check out our latest analysis for Crown Holdings
How does CCK’s operating cash flow stack up against its debt?
Over the past year, CCK has reduced its debt from US$5.52B to US$4.91B , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at US$559.00M for investing into the business. Moreover, CCK has generated US$930.00M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 18.94%, meaning that CCK’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CCK’s case, it is able to generate 0.19x cash from its debt capital.
Can CCK pay its short-term liabilities?
At the current liabilities level of US$2.90B liabilities, the company is not able to meet these obligations given the level of current assets of US$2.84B, with a current ratio of 0.98x below the prudent level of 3x.
Can CCK service its debt comfortably?
Since total debt levels have outpaced equities, CCK is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CCK’s case, the ratio of 4.74x suggests that interest is appropriately 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:
With a high level of debt on its balance sheet, CCK could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for CCK to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how CCK has been performing in the past. I suggest you continue to research Crown Holdings to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CCK’s future growth? Take a look at our free research report of analyst consensus for CCK’s outlook.
2. Valuation: What is CCK 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 CCK 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 pass 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.
