Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Brady Corporation (NYSE:BRC), with a market capitalization of US$2.6b, rarely draw their attention from the investing community. 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. This article will examine BRC’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BRC here.
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Does BRC Produce Much Cash Relative To Its Debt?
BRC’s debt levels have fallen from US$71m to US$52m over the last 12 months – this includes long-term debt. With this debt repayment, BRC’s cash and short-term investments stands at US$202m to keep the business going. Additionally, BRC has generated cash from operations of US$145m in the last twelve months, leading to an operating cash to total debt ratio of 281%, indicating that BRC’s operating cash is sufficient to cover its debt.
Can BRC pay its short-term liabilities?
At the current liabilities level of US$164m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.06x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is BRC’s debt level acceptable?
BRC’s level of debt is low relative to its total equity, at 6.4%. This range is considered safe as BRC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether BRC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BRC’s, case, the ratio of 270x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
BRC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how BRC has been performing in the past. You should continue to research Brady to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BRC’s future growth? Take a look at our free research report of analyst consensus for BRC’s outlook.
- Valuation: What is BRC 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 BRC 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.
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