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Mid-caps stocks, like RBC Bearings Incorporated (NASDAQ:ROLL) with a market capitalization of US$3.7b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine ROLL’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. Don’t forget that this is a general and concentrated examination of RBC Bearings’s financial health, so you should conduct further analysis into ROLL here.
ROLL’s Debt (And Cash Flows)
ROLL’s debt levels have fallen from US$173m to US$44m over the last 12 months , which includes long-term debt. With this debt repayment, ROLL currently has US$30m remaining in cash and short-term investments to keep the business going. Additionally, ROLL has produced US$109m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 249%, indicating that ROLL’s operating cash is sufficient to cover its debt.
Can ROLL pay its short-term liabilities?
With current liabilities at US$90m, the company has been able to meet these commitments with a current assets level of US$503m, leading to a 5.58x current account ratio. 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?
With debt at 4.5% of equity, ROLL may be thought of as having low leverage. This range is considered safe as ROLL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if ROLL’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 ROLL, the ratio of 28.73x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ROLL’s high interest coverage is seen as responsible and safe practice.
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. This is only a rough assessment of financial health, and I’m sure ROLL has company-specific issues impacting its capital structure decisions. You should continue to research RBC Bearings to get a more holistic view 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.