What Investors Should Know About Allegheny Technologies Incorporated's (NYSE:ATI) Financial Strength

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Allegheny Technologies Incorporated (NYSE:ATI), with a market cap of $3.07B, often get neglected by retail investors. 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. This article will examine ATI’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ATI here. View our latest analysis for Allegheny Technologies

Does ATI generate an acceptable amount of cash through operations?

Over the past year, ATI has ramped up its debt from $1,495.7M to $1,877.0M , which comprises of short- and long-term debt. With this growth in debt, ATI's cash and short-term investments stands at $229.6M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn't be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of ATI’s operating efficiency ratios such as ROA here.

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

Looking at ATI’s most recent $708.7M liabilities, it appears that the company has been able to meet these commitments with a current assets level of $1,766.5M, leading to a 2.49x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can ATI service its debt comfortably?

Since total debt levels have outpaced equities, ATI is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since ATI is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

At its current level of cash flow coverage, ATI has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ATI's financial health. Other important fundamentals need to be considered alongside. You should continue to research Allegheny Technologies to get a better picture of the stock by looking at:

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

2. Valuation: What is ATI 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 ATI 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.