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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Coherent, Inc. (NASDAQ:COHR), with a market cap of US$2.9b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at COHR’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into COHR here.
Does COHR produce enough cash relative to debt?
COHR has shrunken its total debt levels in the last twelve months, from US$510m to US$460m , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$320m for investing into the business. Moreover, COHR has produced US$222m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 48%, indicating that COHR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In COHR’s case, it is able to generate 0.48x cash from its debt capital.
Does COHR’s liquid assets cover its short-term commitments?
With current liabilities at US$377m, it seems that the business has been able to meet these obligations given the level of current assets of US$1.2b, with a current ratio of 3.26x. 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 COHR face the risk of succumbing to its debt-load?
COHR’s level of debt is appropriate relative to its total equity, at 35%. This range is considered safe as COHR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether COHR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In COHR’s, case, the ratio of 16.33x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving COHR ample headroom to grow its debt facilities.
COHR 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 should an adverse event occur. This is only a rough assessment of financial health, and I’m sure COHR has company-specific issues impacting its capital structure decisions. I recommend you continue to research Coherent to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for COHR’s future growth? Take a look at our free research report of analyst consensus for COHR’s outlook.
- Valuation: What is COHR 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 COHR 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 firstname.lastname@example.org.