Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as EchoStar Corporation (NASDAQ:SATS) with a market-capitalization of US$3.5b, 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 SATS’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SATS here.
SATS’s Debt (And Cash Flows)
Over the past year, SATS has maintained its debt levels at around US$3.5b including long-term debt. At this current level of debt, SATS’s cash and short-term investments stands at US$3.2b to keep the business going. Additionally, SATS has generated cash from operations of US$735m in the last twelve months, leading to an operating cash to total debt ratio of 21%, indicating that SATS’s debt is appropriately covered by operating cash.
Can SATS pay its short-term liabilities?
Looking at SATS’s US$1.3b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$3.6b, with a current ratio of 2.66x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Communications companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can SATS service its debt comfortably?
With debt reaching 85% of equity, SATS may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since SATS is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although SATS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around SATS’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SATS’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research EchoStar to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SATS’s future growth? Take a look at our free research report of analyst consensus for SATS’s outlook.
- Valuation: What is SATS 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 SATS 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.