Stocks with market capitalization between $2B and $10B, such as Balchem Corporation (NASDAQ:BCPC) with a size of US$3.73b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. BCPC’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BCPC here.
How much cash does BCPC generate through its operations?
BCPC’s debt levels have fallen from US$275.7m to US$210.8m over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$62.5m , ready to deploy into the business. On top of this, BCPC has generated US$111.6m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 53.0%, indicating that BCPC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BCPC’s case, it is able to generate 0.53x cash from its debt capital.
Does BCPC’s liquid assets cover its short-term commitments?
With current liabilities at US$60.6m, it seems that the business has been able to meet these obligations given the level of current assets of US$241.1m, with a current ratio of 3.98x. However, a ratio greater than 3x may be considered as quite high, and some might argue BCPC could be holding too much capital in a low-return investment environment.
Does BCPC face the risk of succumbing to its debt-load?
BCPC’s level of debt is appropriate relative to its total equity, at 31.8%. This range is considered safe as BCPC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BCPC’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 BCPC, the ratio of 13.6x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BCPC ample headroom to grow its debt facilities.
BCPC’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. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BCPC has been performing in the past. I recommend you continue to research Balchem to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BCPC’s future growth? Take a look at our free research report of analyst consensus for BCPC’s outlook.
- Valuation: What is BCPC 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 BCPC 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.