What does BJ’s Restaurants, Inc.’s (NASDAQ:BJRI) Balance Sheet Tell Us About Its Future?
BJ’s Restaurants, Inc. (NASDAQ:BJRI) is a small-cap stock with a market capitalization of US$1.1b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I recommend you dig deeper yourself into BJRI here.
How much cash does BJRI generate through its operations?
BJRI’s debt levels have fallen from US$194m to US$95m over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$26m for investing into the business. On top of this, BJRI has produced US$133m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 140%, signalling that BJRI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BJRI’s case, it is able to generate 1.4x cash from its debt capital.
Can BJRI meet its short-term obligations with the cash in hand?
With current liabilities at US$123m, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$60m, leading to a current ratio of 0.49x.
Can BJRI service its debt comfortably?
With a debt-to-equity ratio of 30%, BJRI’s debt level may be seen as prudent. This range is considered safe as BJRI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BJRI’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 BJRI, the ratio of 11.27x 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:
BJRI’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure BJRI has company-specific issues impacting its capital structure decisions. I recommend you continue to research BJ’s Restaurants to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BJRI’s future growth? Take a look at our free research report of analyst consensus for BJRI’s outlook.
Valuation: What is BJRI 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 BJRI 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.
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.
