With a market capitalization of US$15b, Copart, Inc. (NASDAQ:CPRT) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for CPRT, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
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Does CPRT Produce Much Cash Relative To Its Debt?
CPRT's debt level has been constant at around US$493m over the previous year including long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$108m , ready to be used for running the business. Additionally, CPRT has generated cash from operations of US$564m over the same time period, resulting in an operating cash to total debt ratio of 114%, signalling that CPRT’s operating cash is sufficient to cover its debt.
Does CPRT’s liquid assets cover its short-term commitments?
With current liabilities at US$372m, it appears that the company has been able to meet these obligations given the level of current assets of US$628m, with a current ratio of 1.69x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Commercial Services companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CPRT service its debt comfortably?
CPRT’s level of debt is appropriate relative to its total equity, at 34%. CPRT is not taking on too much debt commitment, which may be constraining for future growth. We can test if CPRT’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For CPRT, the ratio of 38.69x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes CPRT and other large-cap investments thought to be safe.
CPRT’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CPRT's financial health. Other important fundamentals need to be considered alongside. You should continue to research Copart to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CPRT’s future growth? Take a look at our free research report of analyst consensus for CPRT’s outlook.
- Valuation: What is CPRT 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 CPRT 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 email@example.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.