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Investors are always looking for growth in small-cap stocks like Amkor Technology, Inc. (NASDAQ:AMKR), with a market cap of US$2.1b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into AMKR here.
Does AMKR Produce Much Cash Relative To Its Debt?
AMKR’s debt level has been constant at around US$1.3b over the previous year which accounts for long term debt. At this current level of debt, AMKR’s cash and short-term investments stands at US$682m , ready to be used for running the business. Moreover, AMKR has produced US$663m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 50%, signalling that AMKR’s operating cash is sufficient to cover its debt.
Can AMKR pay its short-term liabilities?
With current liabilities at US$1.2b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.44x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Semiconductor companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AMKR face the risk of succumbing to its debt-load?
AMKR is a relatively highly levered company with a debt-to-equity of 72%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. 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 before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In AMKR’s case, the ratio of 3.48x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as AMKR’s high interest coverage is seen as responsible and safe practice.
AMKR’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. Since there is also no concerns around AMKR’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how AMKR has been performing in the past. You should continue to research Amkor Technology to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMKR’s future growth? Take a look at our free research report of analyst consensus for AMKR’s outlook.
- Valuation: What is AMKR 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 AMKR 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 firstname.lastname@example.org. 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.