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Stocks with market capitalization between $2B and $10B, such as SYNNEX Corporation (NYSE:SNX) with a size of US$5.5b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at SNX’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 SNX here.
SNX’s Debt (And Cash Flows)
SNX’s debt levels surged from US$1.8b to US$3.6b over the last 12 months , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$250m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SNX’s operating efficiency ratios such as ROA here.
Does SNX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$3.9b, the company has been able to meet these commitments with a current assets level of US$6.4b, leading to a 1.66x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Electronic companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can SNX service its debt comfortably?
SNX is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether SNX 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 SNX’s, case, the ratio of 6.9x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as SNX’s high interest coverage is seen as responsible and safe practice.
SNX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how SNX has been performing in the past. I recommend you continue to research SYNNEX to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SNX’s future growth? Take a look at our free research report of analyst consensus for SNX’s outlook.
- Valuation: What is SNX 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 SNX 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.