What You Must Know About ArcBest Corporation’s (NASDAQ:ARCB) Financial Strength
ArcBest Corporation (NASDAQ:ARCB) is a small-cap stock with a market capitalization of US$1.0b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into ARCB here.
How does ARCB’s operating cash flow stack up against its debt?
ARCB has built up its total debt levels in the last twelve months, from US$263m to US$291m – this includes both the current and long-term debt. With this rise in debt, ARCB’s cash and short-term investments stands at US$253m for investing into the business. Moreover, ARCB has generated cash from operations of US$229m over the same time period, leading to an operating cash to total debt ratio of 79%, signalling that ARCB’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ARCB’s case, it is able to generate 0.79x cash from its debt capital.
Can ARCB pay its short-term liabilities?
At the current liabilities level of US$455m liabilities, the company has been able to meet these obligations given the level of current assets of US$632m, with a current ratio of 1.39x. Generally, for Transportation 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 ARCB service its debt comfortably?
With a debt-to-equity ratio of 41%, ARCB can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether ARCB 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 ARCB’s, case, the ratio of 21.38x suggests that interest is comfortably 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:
ARCB’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. Since there is also no concerns around ARCB’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure ARCB has company-specific issues impacting its capital structure decisions. I suggest you continue to research ArcBest to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ARCB’s future growth? Take a look at our free research report of analyst consensus for ARCB’s outlook.
Valuation: What is ARCB 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 ARCB 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
