Mid-caps stocks, like Coherent, Inc. (NASDAQ:COHR) with a market capitalization of US$3.0b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at COHR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into COHR here.
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How much cash does COHR generate through its operations?
COHR’s debt levels have fallen from US$594m to US$426m over the last 12 months , which includes long-term debt. With this debt repayment, COHR’s cash and short-term investments stands at US$311m , ready to deploy into the business. Moreover, COHR has produced cash from operations of US$236m over the same time period, leading to an operating cash to total debt ratio of 55%, indicating that COHR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In COHR’s case, it is able to generate 0.55x cash from its debt capital.
Can COHR meet its short-term obligations with the cash in hand?
With current liabilities at US$373m, it appears that the company has been able to meet these commitments with a current assets level of US$1.2b, leading to a 3.32x current account ratio. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Can COHR service its debt comfortably?
With a debt-to-equity ratio of 32%, COHR’s debt level may be seen as prudent. This range is considered safe as COHR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if COHR’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For COHR, the ratio of 16.25x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as COHR’s high interest coverage is seen as responsible and safe practice.
COHR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how COHR has been performing in the past. I recommend you continue to research Coherent to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for COHR’s future growth? Take a look at our free research report of analyst consensus for COHR’s outlook.
- Valuation: What is COHR 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 COHR 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.
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 email@example.com.