Yahoo Finance How Financially Strong Is Black Knight Inc (NYSE:BKI)?
Stocks with market capitalization between $2B and $10B, such as Black Knight Inc (NYSE:BKI) with a size of US$6.7b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. BKI’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Black Knight’s financial health, so you should conduct further analysis into BKI here.
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How much cash does BKI generate through its operations?
BKI’s debt levels have fallen from US$1.5b to US$1.4b over the last 12 months , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$17m , ready to deploy into the business. On top of this, BKI has generated cash from operations of US$417m during the same period of time, leading to an operating cash to total debt ratio of 30%, meaning that BKI’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BKI’s case, it is able to generate 0.3x cash from its debt capital.
Does BKI’s liquid assets cover its short-term commitments?
Looking at BKI’s US$192m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$260m, with a current ratio of 1.36x. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does BKI face the risk of succumbing to its debt-load?
With debt reaching 80% of equity, BKI may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether BKI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BKI’s, case, the ratio of 5.52x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as BKI’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BKI’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. 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 BKI has been performing in the past. You should continue to research Black Knight to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BKI’s future growth? Take a look at our free research report of analyst consensus for BKI’s outlook.
Valuation: What is BKI 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 BKI 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 editorial-team@simplywallst.com.
