What does Crane Co.'s (NYSE:CR) Balance Sheet Tell Us About Its Future?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Crane Co. (NYSE:CR), with a market capitalization of US$4.9b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine CR’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. Don’t forget that this is a general and concentrated examination of Crane’s financial health, so you should conduct further analysis into CR here.
Check out our latest analysis for Crane
Does CR Produce Much Cash Relative To Its Debt?
CR has shrunk its total debt levels in the last twelve months, from US$1.4b to US$1.1b , which also accounts for long term debt. With this reduction in debt, CR's cash and short-term investments stands at US$257m to keep the business going. Additionally, CR has generated US$239m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 21%, meaning that CR’s operating cash is sufficient to cover its debt.
Can CR meet its short-term obligations with the cash in hand?
With current liabilities at US$704m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.95x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Machinery companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CR service its debt comfortably?
With a debt-to-equity ratio of 63%, CR 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CR's case, the ratio of 10.09x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving CR ample headroom to grow its debt facilities.
Next Steps:
Although CR’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how CR has been performing in the past. I suggest you continue to research Crane to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CR’s future growth? Take a look at our free research report of analyst consensus for CR’s outlook.
Valuation: What is CR 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 CR 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
