Is Stericycle, Inc.’s (NASDAQ:SRCL) Balance Sheet A Threat To Its Future?

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Stericycle, Inc. (NASDAQ:SRCL) is a small-cap stock with a market capitalization of US$4.3b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that SRCL is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into SRCL here.

Does SRCL Produce Much Cash Relative To Its Debt?

SRCL’s debt levels surged from US$2.7b to US$3.2b over the last 12 months – this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$48m , ready to be used for running the business. Moreover, SRCL has generated cash from operations of US$92m in the last twelve months, resulting in an operating cash to total debt ratio of 2.9%, indicating that SRCL’s current level of operating cash is not high enough to cover debt.

Does SRCL’s liquid assets cover its short-term commitments?

With current liabilities at US$786m, the company has been able to meet these commitments with a current assets level of US$802m, leading to a 1.02x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Commercial Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

NasdaqGS:SRCL Historical Debt, June 7th 2019
NasdaqGS:SRCL Historical Debt, June 7th 2019

Does SRCL face the risk of succumbing to its debt-load?

Since total debt levels exceed equity, SRCL is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since SRCL is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

SRCL’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. 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 SRCL has been performing in the past. I recommend you continue to research Stericycle to get a better picture of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for SRCL’s future growth? Take a look at our free research report of analyst consensus for SRCL’s outlook.
  2. Valuation: What is SRCL 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 SRCL is currently mispriced by the market.
  3. 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 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.