Stocks with market capitalization between $2B and $10B, such as Société BIC SA (EPA:BB) with a size of €4.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine BB’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BB here.
Can BB service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Société BIC 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 BB, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does BB’s liquid assets cover its short-term commitments?
Since Société BIC 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at BB’s €453m in current liabilities, the company has been able to meet these obligations given the level of current assets of €1.2b, with a current ratio of 2.6x. For Commercial Services companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
BB has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure BB has company-specific issues impacting its capital structure decisions. You should continue to research Société BIC to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BB’s future growth? Take a look at our free research report of analyst consensus for BB’s outlook.
- Valuation: What is BB 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 BB 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 email@example.com.