Stocks with market capitalization between $2B and $10B, such as Carpenter Technology Corporation (NYSE:CRS) with a size of US$2.64b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at CRS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CRS here. View out our latest analysis for Carpenter Technology
How much cash does CRS generate through its operations?
Over the past year, CRS has maintained its debt levels at around US$605.00m comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$66.90m , ready to deploy into the business. Additionally, CRS has produced cash from operations of US$129.30m over the same time period, leading to an operating cash to total debt ratio of 21.37%, meaning that CRS’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CRS’s case, it is able to generate 0.21x cash from its debt capital.
Does CRS’s liquid assets cover its short-term commitments?
Looking at CRS’s most recent US$396.00m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.09b, with a current ratio of 2.76x. For Metals and Mining 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.
Does CRS face the risk of succumbing to its debt-load?
With debt reaching 44.02% of equity, CRS may be thought of as relatively highly levered. 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 CRS’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 CRS, the ratio of 6.05x 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.
At its current level of cash flow coverage, CRS has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for CRS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Carpenter Technology to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CRS’s future growth? Take a look at our free research report of analyst consensus for CRS’s outlook.
- Valuation: What is CRS 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 CRS 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 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.