Investors are always looking for growth in small-cap stocks like SYNNEX Corporation (NYSE:SNX), with a market cap of US$4.8b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. However, potential investors would need to take a closer look, and I recommend you dig deeper yourself into SNX here.
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SNX’s Debt (And Cash Flows)
SNX has built up its total debt levels in the last twelve months, from US$1.8b to US$3.6b , which includes long-term debt. With this increase in debt, SNX’s cash and short-term investments stands at US$250m to keep the business going. 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 take a look at some of SNX’s operating efficiency ratios such as ROA here.
Can SNX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$3.9b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.66x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SNX service its debt comfortably?
SNX is a highly-leveraged company with debt exceeding equity by over 100%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. 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 inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although SNX’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 SNX’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SNX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research SYNNEX to get a more holistic view of the small-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.
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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.