Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), with a market capitalization of US$3.9b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. CBRL’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into CBRL here.
How much cash does CBRL generate through its operations?
CBRL’s debt level has been constant at around US$400m over the previous year which accounts for long term debt. At this current level of debt, CBRL currently has US$170m remaining in cash and short-term investments , ready to deploy into the business. Moreover, CBRL has generated cash from operations of US$373m over the same time period, leading to an operating cash to total debt ratio of 93%, meaning that CBRL’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 CBRL’s case, it is able to generate 0.93x cash from its debt capital.
Can CBRL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$380m, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.94x.
Is CBRL’s debt level acceptable?
With debt reaching 64% of equity, CBRL 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 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 debtors may be willing to loan the company more money, giving CBRL ample headroom to grow its debt facilities.
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 low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for CBRL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cracker Barrel Old Country Store to get a more holistic view of the stock by looking at:
- 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.
- 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.
- 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.
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