Xilinx Inc (NASDAQ:XLNX), a large-cap worth US$23b, comes to mind for investors seeking a strong and reliable stock investment. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. However, the health of the financials determines whether the company continues to succeed. This article will examine Xilinx’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 XLNX here.
How does XLNX’s operating cash flow stack up against its debt?
XLNX has sustained its debt level by about US$1.7b over the last 12 months including long-term debt. At this constant level of debt, XLNX’s cash and short-term investments stands at US$3.3b , ready to deploy into the business. Moreover, XLNX has generated cash from operations of US$916m during the same period of time, resulting in an operating cash to total debt ratio of 53%, signalling that XLNX’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In XLNX’s case, it is able to generate 0.53x cash from its debt capital.
Can XLNX pay its short-term liabilities?
At the current liabilities level of US$932m, the company has been able to meet these obligations given the level of current assets of US$4.0b, with a current ratio of 4.26x. 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 XLNX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 71%, XLNX can be considered as an above-average leveraged company. 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.
XLNX’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 XLNX’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure XLNX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Xilinx to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for XLNX’s future growth? Take a look at our free research report of analyst consensus for XLNX’s outlook.
- Valuation: What is XLNX 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 XLNX 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 email@example.com.