Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as RBC Bearings Incorporated (NASDAQ:ROLL) with a market-capitalization of US$3.2b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. ROLL’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 ROLL here.
Does ROLL Produce Much Cash Relative To Its Debt?
ROLL’s debt levels have fallen from US$198m to US$115m over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$82m to keep the business going. On top of this, ROLL has produced cash from operations of US$117m in the last twelve months, leading to an operating cash to total debt ratio of 102%, indicating that ROLL’s debt is appropriately covered by operating cash.
Can ROLL pay its short-term liabilities?
Looking at ROLL’s US$84m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.44x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Is ROLL’s debt level acceptable?
ROLL’s level of debt is appropriate relative to its total equity, at 12%. ROLL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether ROLL 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 ROLL’s, case, the ratio of 24.82x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ROLL ample headroom to grow its debt facilities.
ROLL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ROLL has been performing in the past. You should continue to research RBC Bearings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ROLL’s future growth? Take a look at our free research report of analyst consensus for ROLL’s outlook.
- Valuation: What is ROLL 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 ROLL 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.