Investors are always looking for growth in small-cap stocks like Electronics for Imaging Inc (NASDAQ:EFII), with a market cap of $1.37B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Tech industry, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into EFII here.
How does EFII’s operating cash flow stack up against its debt?
Over the past year, EFII has maintained its debt levels at around $318.7M – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at $459.7M , ready to deploy into the business. On top of this, EFII has generated $121.0M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 37.96%, indicating that EFII’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 EFII’s case, it is able to generate 0.38x cash from its debt capital.
Does EFII’s liquid assets cover its short-term commitments?
Looking at EFII’s most recent $263.9M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of $816.3M, with a current ratio of 3.09x. However, anything about 3x may be excessive, since EFII may be leaving too much capital in low-earning investments.
Is EFII’s debt level acceptable?With debt at 39.27% of equity, EFII may be thought of as appropriately levered. EFII is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether EFII 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 EFII’s, case, the ratio of 4.99x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving EFII ample headroom to grow its debt facilities.
EFII’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how EFII has been performing in the past. I suggest you continue to research Electronics for Imaging to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for EFII’s future growth? Take a look at our free research report of analyst consensus for EFII’s outlook.
- 2. Valuation: What is EFII 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 EFII is currently mispriced by the market.
- 3. 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.