Article taken from: finance.yahoo.com
How Financially Strong Is Bunzl plc (LON:BNZL)? Lacy Summers Reblog Mid-caps stocks, like Bunzl plc ( LON:BNZL ) with a market capitalization of UK£7.8b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine BNZL’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BNZL here . See our latest analysis for Bunzl How much cash does BNZL generate through its operations? BNZL’s debt levels surged from UK£1.7b to UK£2.0b over the last 12 months – this includes long-term debt. With this rise in debt, BNZL’s cash and short-term investments stands at UK£523m for investing into the business. Additionally, BNZL has produced cash from operations of UK£472m over the same time period, leading to an operating cash to total debt ratio of 24%, indicating that BNZL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BNZL’s case, it is able to generate 0.24x cash from its debt capital. Can BNZL pay its short-term liabilities? With current liabilities at UK£2.2b, it seems that the business has been able to meet these obligations given the level of current assets of UK£2.9b, with a current ratio of 1.33x. Usually, for Trade Distributors 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. More Can BNZL service its debt comfortably? Since total debt levels have outpaced equities, BNZL is a highly 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 BNZL’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 BNZL, the ratio of 10.54x 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: Although BNZL’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 BNZL’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for BNZL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Bunzl to get a better picture of the mid-cap by looking at: Future Outlook : What are well-informed industry analysts predicting for BNZL’s future growth? Take a look at our free research report of analyst consensus for BNZL’s outlook. Valuation : What is BNZL 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 BNZL 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 .