Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Jabil Inc. (NYSE:JBL), with a market cap of US$4.5b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. JBL’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into JBL here.
Does JBL Produce Much Cash Relative To Its Debt?
JBL has built up its total debt levels in the last twelve months, from US$2.2b to US$2.7b , which accounts for long term debt. With this growth in debt, JBL currently has US$749m remaining in cash and short-term investments to keep the business going. Moreover, JBL has generated cash from operations of US$1.9b during the same period of time, resulting in an operating cash to total debt ratio of 72%, indicating that JBL’s debt is appropriately covered by operating cash.
Can JBL meet its short-term obligations with the cash in hand?
Looking at JBL’s US$7.8b in current liabilities, the company has been able to meet these obligations given the level of current assets of US$7.9b, with a current ratio of 1.02x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Electronic companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is JBL’s debt level acceptable?
With total debt exceeding equity, JBL is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if JBL’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 JBL, the ratio of 4.71x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving JBL ample headroom to grow its debt facilities.
Although JBL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for JBL's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Jabil to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JBL’s future growth? Take a look at our free research report of analyst consensus for JBL’s outlook.
- Valuation: What is JBL 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 JBL 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.
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 firstname.lastname@example.org. 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.