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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as John Bean Technologies Corporation (NYSE:JBT), with a market cap of US$3.5b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at JBT’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into JBT here.
JBT’s Debt (And Cash Flows)
JBT has built up its total debt levels in the last twelve months, from US$416m to US$482m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$44m , ready to be used for running the business. Moreover, JBT has produced US$161m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 33%, indicating that JBT’s operating cash is sufficient to cover its debt.
Can JBT pay its short-term liabilities?
With current liabilities at US$454m, it seems that the business has been able to meet these commitments with a current assets level of US$627m, leading to a 1.38x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Machinery companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does JBT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 94%, JBT can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if JBT’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 JBT, the ratio of 14.67x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving JBT ample headroom to grow its debt facilities.
Although JBT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure JBT has company-specific issues impacting its capital structure decisions. I recommend you continue to research John Bean Technologies to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JBT’s future growth? Take a look at our free research report of analyst consensus for JBT’s outlook.
- Valuation: What is JBT 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 JBT 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.