Is Finisar Corporation (NASDAQ:FNSR) A Financially Sound Company?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Finisar Corporation (NASDAQ:FNSR), with a market cap of $2.41B, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at FNSR’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. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into FNSR here. View our latest analysis for Finisar
How does FNSR’s operating cash flow stack up against its debt?
FNSR’s debt levels surged from $229.4M to $707.8M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, FNSR’s cash and short-term investments stands at $1,236.8M for investing into the business. On top of this, FNSR has produced cash from operations of $227.8M during the same period of time, resulting in an operating cash to total debt ratio of 32.19%, indicating that FNSR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In FNSR’s case, it is able to generate 0.32x cash from its debt capital.
Can FNSR pay its short-term liabilities?
With current liabilities at $251.8M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.58x. However, anything about 3x may be excessive, since FNSR may be leaving too much capital in low-earning investments.
Is FNSR’s debt level acceptable?
With debt reaching 44.27% of equity, FNSR may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In FNSR’s case, the ratio of 6.66x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving FNSR ample headroom to grow its debt facilities.
Next Steps:
Although FNSR’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 FNSR’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for FNSR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Finisar to get a more holistic view of the mid-cap by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FNSR’s future growth? Take a look at our free research report of analyst consensus for FNSR’s outlook.
2. Valuation: What is FNSR 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 FNSR is currently mispriced by the market.
3. 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.
