Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like KBR Inc (NYSE:KBR), with a market cap of US$2.57b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. KBR’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KBR here. Check out our latest analysis for KBR
How does KBR’s operating cash flow stack up against its debt?
KBR’s debt levels have fallen from US$693.00m to US$508.00m over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at US$439.00m , ready to deploy into the business. Moreover, KBR has produced cash from operations of US$193.00m during the same period of time, leading to an operating cash to total debt ratio of 37.99%, meaning that KBR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KBR’s case, it is able to generate 0.38x cash from its debt capital.
Can KBR meet its short-term obligations with the cash in hand?
With current liabilities at US$1.07b, it appears that the company has been able to meet these obligations given the level of current assets of US$1.43b, with a current ratio of 1.33x. For Construction companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is KBR’s debt level acceptable?
KBR’s level of debt is appropriate relative to its total equity, at 35.56%. This range is considered safe as KBR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if KBR’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 KBR, the ratio of 8.68x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as KBR’s high interest coverage is seen as responsible and safe practice.
KBR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how KBR has been performing in the past. You should continue to research KBR to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KBR’s future growth? Take a look at our free research report of analyst consensus for KBR’s outlook.
- Valuation: What is KBR 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 KBR 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.