Investors are always looking for growth in small-cap stocks like Rush Enterprises Inc (NASDAQ:RUSH.B), with a market cap of US$1.62b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into RUSH.B here.
How does RUSH.B’s operating cash flow stack up against its debt?
RUSH.B’s debt levels surged from US$1.35b to US$1.53b over the last 12 months – this includes both the current and long-term debt. With this increase in debt, RUSH.B’s cash and short-term investments stands at US$148.32m , ready to deploy into the business. Additionally, RUSH.B has produced US$212.00m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 13.83%, signalling that RUSH.B’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In RUSH.B’s case, it is able to generate 0.14x cash from its debt capital.
Does RUSH.B’s liquid assets cover its short-term commitments?
With current liabilities at US$1.31b, the company has been able to meet these commitments with a current assets level of US$1.51b, leading to a 1.15x current account ratio. Usually, for Trade Distributors companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is RUSH.B’s debt level acceptable?
With total debt exceeding equities, RUSH.B is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if RUSH.B’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 RUSH.B, the ratio of 11.74x 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.
RUSH.B’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for RUSH.B’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Rush Enterprises to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RUSH.B’s future growth? Take a look at our free research report of analyst consensus for RUSH.B’s outlook.
- Valuation: What is RUSH.B 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 RUSH.B 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.
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