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

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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Stericycle, Inc. (NASDAQ:SRCL), with a market cap of US$5.3b, are often out of the spotlight. 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. SRCL’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. Don’t forget that this is a general and concentrated examination of Stericycle’s financial health, so you should conduct further analysis into SRCL here.

View our latest analysis for Stericycle

Does SRCL Produce Much Cash Relative To Its Debt?

Over the past year, SRCL has maintained its debt levels at around US$2.8b including long-term debt. At this stable level of debt, SRCL currently has US$34m remaining in cash and short-term investments , ready to be used for running the business. Additionally, SRCL has produced cash from operations of US$166m during the same period of time, resulting in an operating cash to total debt ratio of 6.0%, indicating that SRCL’s operating cash is less than its debt.

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

With current liabilities at US$733m, it seems that the business has been able to meet these commitments with a current assets level of US$747m, leading to a 1.02x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Commercial Services companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Is SRCL’s debt level acceptable?

SRCL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SRCL is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although SRCL’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. Since there is also no concerns around SRCL's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure SRCL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Stericycle to get a better picture of the mid-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 editorial-team@simplywallst.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.