Is National Instruments Corporation (NASDAQ:NATI) A Financially Strong Company?

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as National Instruments Corporation (NASDAQ:NATI) with a market-capitalization of US$6.37b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine NATI’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 NATI here.

See our latest analysis for National Instruments

Does NATI face the risk of succumbing to its debt-load?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For NATI, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with NATI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Can NATI meet its short-term obligations with the cash in hand?

Since National Instruments doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at NATI’s most recent US$268.2m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$928.5m, leading to a 3.46x current account ratio. However, a ratio greater than 3x may be considered as too high, as NATI could be holding too much capital in a low-return investment environment.

Next Steps:

NATI has no debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure NATI has company-specific issues impacting its capital structure decisions. I suggest you continue to research National Instruments to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for NATI’s future growth? Take a look at our free research report of analyst consensus for NATI’s outlook.
2. Valuation: What is NATI 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 NATI 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.

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 editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.