What does Iridium Communications Inc’s (NASDAQ:IRDM) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as Iridium Communications Inc (NASDAQ:IRDM) with its market cap of US$1.88b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Telecom businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into IRDM here.
Does IRDM produce enough cash relative to debt?
IRDM’s debt levels surged from US$1.66b to US$1.76b over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$297.63m for investing into the business. Moreover, IRDM has generated cash from operations of US$259.62m over the same time period, resulting in an operating cash to total debt ratio of 14.76%, meaning that IRDM’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In IRDM’s case, it is able to generate 0.15x cash from its debt capital.
Can IRDM meet its short-term obligations with the cash in hand?
With current liabilities at US$214.23m, it seems that the business has been able to meet these obligations given the level of current assets of US$411.07m, with a current ratio of 1.92x. Generally, for Telecom companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does IRDM face the risk of succumbing to its debt-load?
With total debt exceeding equities, IRDM is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
IRDM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure IRDM has company-specific issues impacting its capital structure decisions. I suggest you continue to research Iridium Communications to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IRDM’s future growth? Take a look at our free research report of analyst consensus for IRDM’s outlook.
Valuation: What is IRDM 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 IRDM 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 pass 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.