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What Does Cracker Barrel Old Country Store, Inc.'s (NASDAQ:CBRL) Balance Sheet Tell Us About It?

Simply Wall St

While small-cap stocks, such as Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) with its market cap of US$3.7b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. 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. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into CBRL here.

Does CBRL Produce Much Cash Relative To Its Debt?

CBRL has sustained its debt level by about US$401m over the last 12 months including long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$170m , ready to be used for running the business. Additionally, CBRL has generated US$373m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 93%, signalling that CBRL’s operating cash is sufficient to cover its debt.

Can CBRL meet its short-term obligations with the cash in hand?

Looking at CBRL’s US$380m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$359m, with a current ratio of 0.94x. The current ratio is the number you get when you divide current assets by current liabilities.

NasdaqGS:CBRL Historical Debt, April 16th 2019

Does CBRL face the risk of succumbing to its debt-load?

CBRL is a relatively highly levered company with a debt-to-equity of 64%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can test if CBRL’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 CBRL, the ratio of 17.35x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as CBRL’s high interest coverage is seen as responsible and safe practice.

Next Steps:

CBRL’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. But, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how CBRL has been performing in the past. I suggest you continue to research Cracker Barrel Old Country Store to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CBRL’s future growth? Take a look at our free research report of analyst consensus for CBRL’s outlook.
  2. Valuation: What is CBRL 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 CBRL 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.

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 editorial-team@simplywallst.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.