Mid-caps stocks, like Viasat, Inc. (NASDAQ:VSAT) with a market capitalization of US$5.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. VSAT’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into VSAT here.
VSAT’s Debt (And Cash Flows)
Over the past year, VSAT has ramped up its debt from US$1.0b to US$1.2b , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$43m , ready to be used for running the business. On top of this, VSAT has generated US$291m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 25%, indicating that VSAT’s operating cash is sufficient to cover its debt.
Can VSAT meet its short-term obligations with the cash in hand?
At the current liabilities level of US$475m, the company has been able to meet these obligations given the level of current assets of US$685m, with a current ratio of 1.44x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Communications companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can VSAT service its debt comfortably?
With a debt-to-equity ratio of 61%, VSAT can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since VSAT is currently unprofitable, sustainability of its current state of operations becomes a concern. 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 VSAT’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 VSAT’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how VSAT has been performing in the past. I suggest you continue to research Viasat to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VSAT’s future growth? Take a look at our free research report of analyst consensus for VSAT’s outlook.
- Historical Performance: What has VSAT’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.
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