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There are a number of reasons that attract investors towards large-cap companies such as Maxim Integrated Products, Inc. (NASDAQ:MXIM), with a market cap of US$14b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, the health of the financials determines whether the company continues to succeed. This article will examine Maxim Integrated Products’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into MXIM here.
MXIM’s Debt (And Cash Flows)
MXIM has shrunk its total debt levels in the last twelve months, from US$1.5b to US$992m , which includes long-term debt. With this reduction in debt, MXIM currently has US$1.9b remaining in cash and short-term investments to keep the business going. On top of this, MXIM has generated US$785m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 79%, meaning that MXIM’s operating cash is sufficient to cover its debt.
Can MXIM pay its short-term liabilities?
Looking at MXIM’s US$399m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.46x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Does MXIM face the risk of succumbing to its debt-load?
MXIM is a relatively highly levered company with a debt-to-equity of 60%. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing.
MXIM’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. I admit this is a fairly basic analysis for MXIM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Maxim Integrated Products to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MXIM’s future growth? Take a look at our free research report of analyst consensus for MXIM’s outlook.
- Valuation: What is MXIM 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 MXIM 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.