CyberOptics Corporation (NASDAQ:CYBE), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is CYBE will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean CYBE has outstanding financial strength. I recommend you look at the following hurdles to assess CYBE’s financial health.
Is CYBE right in choosing financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. Either CYBE does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. A revenue growth in the teens is not considered high-growth. CYBE’s revenue growth of 12% falls into this range. More capital can help the business grow faster. If CYBE is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Can CYBE pay its short-term liabilities?
Since CyberOptics doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$9.3m, it seems that the business has been able to meet these commitments with a current assets level of US$45m, leading to a 4.83x 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.
CYBE is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around CYBE’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, CYBE’s financial situation may change. This is only a rough assessment of financial health, and I’m sure CYBE has company-specific issues impacting its capital structure decisions. I suggest you continue to research CyberOptics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CYBE’s future growth? Take a look at our free research report of analyst consensus for CYBE’s outlook.
- Valuation: What is CYBE 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 CYBE 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.
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