While small-cap stocks, such as John Bean Technologies Corporation (NYSE:JBT) with its market cap of US$3.2b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into JBT here.
JBT’s Debt (And Cash Flows)
Over the past year, JBT has maintained its debt levels at around US$388m including long-term debt. At this constant level of debt, JBT currently has US$43m remaining in cash and short-term investments , ready to be used for running the business. Moreover, JBT has generated US$154m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 40%, signalling that JBT’s debt is appropriately covered by operating cash.
Can JBT meet its short-term obligations with the cash in hand?
At the current liabilities level of US$485m, it seems that the business has been able to meet these commitments with a current assets level of US$619m, leading to a 1.27x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Machinery companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is JBT’s debt level acceptable?
JBT is a relatively highly levered company with a debt-to-equity of 85%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. 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 13.66x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as JBT’s high interest coverage is seen as responsible and safe practice.
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. Keep in mind I haven’t considered other factors such as how JBT has been performing in the past. You should continue to research John Bean Technologies to get a more holistic view of the small-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.
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