Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Boral Limited (ASX:BLD) with a market-capitalization of AU$7.34B, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at BLD’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into BLD here. See our latest analysis for Boral
How does BLD’s operating cash flow stack up against its debt?
BLD’s debt levels surged from AU$1.35B to AU$2.57B over the last 12 months – this includes both the current and long-term debt. With this increase in debt, BLD’s cash and short-term investments stands at AU$241.60M for investing into the business. On top of this, BLD has produced cash from operations of AU$413.30M during the same period of time, resulting in an operating cash to total debt ratio of 16.07%, signalling that BLD’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BLD’s case, it is able to generate 0.16x cash from its debt capital.
Can BLD pay its short-term liabilities?
Looking at BLD’s most recent AU$1.47B liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.2x. Usually, for Basic Materials companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is BLD’s debt level acceptable?
With a debt-to-equity ratio of 46.23%, BLD can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if BLD’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 BLD, the ratio of 5.27x suggests that interest is appropriately 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:
At its current level of cash flow coverage, BLD has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure BLD has company-specific issues impacting its capital structure decisions. I recommend you continue to research Boral to get a more holistic view of the stock by looking at: