Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Brambles Limited (ASX:BXB) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to extending previous success is in the health of the company’s financials. This article will examine Brambles’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 information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into BXB here. See our latest analysis for Brambles
How much cash does BXB generate through its operations?
Over the past year, BXB has maintained its debt levels at around $2,732.4M made up of current and long term debt. At this stable level of debt, BXB’s cash and short-term investments stands at $159.7M for investing into the business. Moreover, BXB has generated $1,211.2M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 44.33%, indicating that BXB’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 BXB’s case, it is able to generate 0.44x cash from its debt capital.
Can BXB meet its short-term obligations with the cash in hand?
Looking at BXB’s most recent $2,124.4M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of $1,592.1M, leading to a 0.75x current account ratio. which is under the appropriate industry ratio of 3x.
Can BXB service its debt comfortably?
With a debt-to-equity ratio of 95.98%, BXB can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. The sustainability of BXB’s debt levels can be assessed by comparing the company’s interest payments to earnings. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In BXB’s case, the ratio of 8.69x suggests that interest is well-covered. Large-cap investments like BXB are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.