What does Barnes & Noble Inc’s (NYSE:BKS) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Barnes & Noble Inc (NYSE:BKS), with a market cap of US$359.63M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Specialty Retail industry facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into BKS here.
Does BKS generate an acceptable amount of cash through operations?
BKS’s debt levels surged from US$47.20M to US$64.90M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, BKS currently has US$11.99M remaining in cash and short-term investments , ready to deploy into the business. Additionally, BKS has generated US$145.24M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 223.80%, meaning that BKS’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In BKS’s case, it is able to generate 2.24x cash from its debt capital.
Can BKS pay its short-term liabilities?
Looking at BKS’s most recent US$1.11B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.13B, with a current ratio of 1.02x. For Specialty Retail companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can BKS service its debt comfortably?
BKS’s level of debt is appropriate relative to its total equity, at 13.50%. BKS is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for BKS, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
BKS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, 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 BKS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Barnes & Noble to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for BKS’s future growth? Take a look at our free research report of analyst consensus for BKS’s outlook.
2. Valuation: What is BKS 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 BKS 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.
