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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Belden Inc. (NYSE:BDC), with a market capitalization of US$2.1b, rarely draw their attention from the investing community. 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 BDC’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 Belden’s financial health, so you should conduct further analysis into BDC here.
BDC’s Debt (And Cash Flows)
BDC's debt levels have fallen from US$1.7b to US$1.5b over the last 12 months – this includes long-term debt. With this debt repayment, BDC currently has US$339m remaining in cash and short-term investments to keep the business going. Additionally, BDC has produced cash from operations of US$327m in the last twelve months, resulting in an operating cash to total debt ratio of 21%, meaning that BDC’s current level of operating cash is high enough to cover debt.
Can BDC pay its short-term liabilities?
Looking at BDC’s US$572m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 1.97x. The current ratio is the number you get when you divide current assets by current liabilities. For Electronic 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.
Is BDC’s debt level acceptable?
BDC is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if BDC’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 BDC, the ratio of 5.15x 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.
BDC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure BDC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Belden to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BDC’s future growth? Take a look at our free research report of analyst consensus for BDC’s outlook.
- Valuation: What is BDC 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 BDC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.