Mid-caps stocks, like BBA Aviation plc (LSE:BBA) with a market capitalization of $3.16B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. I’ve put together a small checklist, which I believe provides a ballpark estimate of their financial health status. See our latest analysis for BBA
Does BBA face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of BBA, the debt-to-equity ratio is 75.22%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level. While debt-to-equity ratio has several factors at play, an easier way to check whether BBA’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. In BBA’s case, its interest is excessively covered by its earnings as the ratio sits at 3.74x. Lenders may be less hesitant to lend out more funding as BBA’s high interest coverage is seen as responsible and safe practice.
Can BBA pay its short-term liabilities?
Debt to equity ratio is an important aspect of financial strength. But if the company has a substantial amount of cash on its balance sheet, that should allay some fear of a debt overhang and increase the chance of meeting upcoming liabilities. We need to assess BBA’s cash and other liquid assets against its upcoming expenses. Our analysis shows that BBA does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
BBA’s debt and cash levels indicate room for improvement. Given its current cash and equivalents is insufficient to meet these upcoming expenses, this raises some red flags for BBA. Now that you know to keep debt in mind when putting together your investment thesis, I recommend you check out our latest free analysis report on BBA Aviation to see what other factors for BBA you should consider.
PS. If you are not interested in BBA Aviation anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.
How is Warren Buffet’s advice working out for Bill Gates?
Bill Gates dropped out of college to found Microsoft. He’s a prodigy who has become one of the richest men in the world. But when it comes to the stock market, he follows the advice of billionaire investor Warren Buffett. So what stocks is he holding today? Click here to view a FREE detailed infographic analysis of Bill & Melinda Gates Foundation’s portfolio.