Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as National Beverage Corp (NASDAQ:FIZZ), with a market capitalization of US$4.6b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. FIZZ’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 FIZZ here.
Does FIZZ face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that National Beverage has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with FIZZ, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can FIZZ meet its short-term obligations with the cash in hand?
Since National Beverage doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$121m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.43x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue FIZZ could be holding too much capital in a low-return investment environment.
FIZZ has zero-debt in addition to ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, however, some level of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how FIZZ has performed in the past. I recommend you continue to research National Beverage to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FIZZ’s future growth? Take a look at our free research report of analyst consensus for FIZZ’s outlook.
- Valuation: What is FIZZ 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 FIZZ 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 firstname.lastname@example.org.