Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
While small-cap stocks, such as Jabil Inc. (NYSE:JBL) with its market cap of US$4.6b, 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 crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into JBL here.
JBL’s Debt (And Cash Flows)
JBL's debt levels surged from US$2.2b to US$2.7b over the last 12 months – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$749m , ready to be used for running the business. 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%, meaning that JBL’s debt is appropriately covered by operating cash.
Does JBL’s liquid assets cover its short-term commitments?
With current liabilities at US$7.8b, it seems that the business has been able to meet these commitments with a current assets level of US$7.9b, leading to a 1.02x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does JBL face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, JBL is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. 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. Since there is also no concerns around JBL's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for JBL's financial health. Other important fundamentals need to be considered alongside. You should continue to research Jabil to get a better picture of the small-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.