While small-cap stocks, such as Navigant Consulting Inc (NYSE:NCI) with its market cap of US$989m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into NCI here.
How does NCI’s operating cash flow stack up against its debt?
NCI has shrunken its total debt levels in the last twelve months, from US$185m to US$147m , which comprises of short- and long-term debt. With this reduction in debt, NCI currently has US$11m remaining in cash and short-term investments for investing into the business. Moreover, NCI has produced US$126m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 86%, signalling that NCI’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NCI’s case, it is able to generate 0.86x cash from its debt capital.
Can NCI meet its short-term obligations with the cash in hand?
With current liabilities at US$157m, it seems that the business has been able to meet these commitments with a current assets level of US$563m, leading to a 3.59x current account ratio. Having said that, anything above 3x may be considered excessive by some investors. They might argue NCI is leaving too much capital in low-earning investments.
Can NCI service its debt comfortably?
With a debt-to-equity ratio of 21%, NCI’s debt level may be seen as prudent. NCI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if NCI’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 NCI, the ratio of 17.65x 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.
NCI’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, 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 NCI has been performing in the past. You should continue to research Navigant Consulting to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NCI’s future growth? Take a look at our free research report of analyst consensus for NCI’s outlook.
- Valuation: What is NCI 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 NCI 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.