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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Intel Corporation (NASDAQ:INTC). With a market valuation of US$232b, INTC is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for INTC, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
How much cash does INTC generate through its operations?
INTC has sustained its debt level by about US$26b over the last 12 months including long-term debt. At this stable level of debt, INTC currently has US$12b remaining in cash and short-term investments , ready to deploy into the business. Additionally, INTC has generated cash from operations of US$29b during the same period of time, resulting in an operating cash to total debt ratio of 112%, meaning that INTC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In INTC’s case, it is able to generate 1.12x cash from its debt capital.
Does INTC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$17b, it appears that the company has been able to meet these obligations given the level of current assets of US$29b, with a current ratio of 1.73x. 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 INTC face the risk of succumbing to its debt-load?
INTC’s level of debt is appropriate relative to its total equity, at 35%. INTC is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether INTC is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For INTC, the ratio of 1107x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes INTC and other large-cap investments thought to be safe.
INTC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure INTC has company-specific issues impacting its capital structure decisions. You should continue to research Intel to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INTC’s future growth? Take a look at our free research report of analyst consensus for INTC’s outlook.
- Valuation: What is INTC 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 INTC 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. On rare occasion, data errors may occur. Thank you for reading.