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Is Blackmores Limited’s (ASX:BKL) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like Blackmores Limited (ASX:BKL), with a market cap of AU$2.36B. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into BKL here.

Does BKL generate an acceptable amount of cash through operations?

BKL’s debt levels surged from AU$55.45M to AU$78.97M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, BKL currently has AU$34.25M remaining in cash and short-term investments , ready to deploy into the business. Moreover, BKL has produced cash from operations of AU$45.63M in the last twelve months, leading to an operating cash to total debt ratio of 57.79%, indicating that BKL’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BKL’s case, it is able to generate 0.58x cash from its debt capital.

Can BKL meet its short-term obligations with the cash in hand?

Looking at BKL’s most recent AU$142.56M liabilities, the company has been able to meet these obligations given the level of current assets of AU$258.66M, with a current ratio of 1.81x. Usually, for Personal Products companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

ASX:BKL Historical Debt May 26th 18
ASX:BKL Historical Debt May 26th 18

Can BKL service its debt comfortably?

With a debt-to-equity ratio of 55.47%, BKL can be considered as an above-average leveraged company. This is not uncommon for a small-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 BKL’s case, the ratio of 24.73x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BKL’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although BKL’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. I admit this is a fairly basic analysis for BKL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Blackmores to get a more holistic view of the small-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for BKL’s future growth? Take a look at our free research report of analyst consensus for BKL’s outlook.

  2. Valuation: What is BKL 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 BKL is currently mispriced by the market.

  3. 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 pass 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.