What Investors Should Know About ACCO Brands Corporation’s (NYSE:ACCO) Financial Strength
While small-cap stocks, such as ACCO Brands Corporation (NYSE:ACCO) with its market cap of US$1.44b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, 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. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into ACCO here.
Does ACCO produce enough cash relative to debt?
Over the past year, ACCO has ramped up its debt from US$696.20m to US$932.40m – this includes both the current and long-term debt. With this rise in debt, ACCO’s cash and short-term investments stands at US$76.90m , ready to deploy into the business. Additionally, ACCO has generated cash from operations of US$204.90m over the same time period, leading to an operating cash to total debt ratio of 21.98%, meaning that ACCO’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ACCO’s case, it is able to generate 0.22x cash from its debt capital.
Can ACCO pay its short-term liabilities?
With current liabilities at US$538.40m, the company has been able to meet these obligations given the level of current assets of US$829.60m, with a current ratio of 1.54x. For Commercial Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can ACCO service its debt comfortably?
ACCO is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether ACCO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ACCO’s, case, the ratio of 6.68x 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.
Next Steps:
ACCO’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ACCO has been performing in the past. I suggest you continue to research ACCO Brands to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ACCO’s future growth? Take a look at our free research report of analyst consensus for ACCO’s outlook.
Valuation: What is ACCO 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 ACCO 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.
