While small-cap stocks, such as Infinera Corporation (NASDAQ:INFN) with its market cap of US$642m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Communications industry, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into INFN here.
How does INFN’s operating cash flow stack up against its debt?
INFN has built up its total debt levels in the last twelve months, from US$142m to US$263m , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$447m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of INFN’s operating efficiency ratios such as ROA here.
Can INFN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$219m, it appears that the company has been able to meet these obligations given the level of current assets of US$856m, with a current ratio of 3.92x. Having said that, a ratio greater than 3x may be considered high by some.
Does INFN face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 37%, INFN’s debt level may be seen as prudent. INFN is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for INFN, and the company also has the ability and headroom to increase debt if needed going forward.
INFN’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. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for INFN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Infinera to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INFN’s future growth? Take a look at our free research report of analyst consensus for INFN’s outlook.
- Historical Performance: What has INFN’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.