Infinera Corporation (NASDAQ:INFN) is a small-cap stock with a market capitalization of US$763m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Communications industry, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into INFN here.
How much cash does INFN generate through its operations?
INFN has built up its total debt levels in the last twelve months, from US$142m to US$263m – this includes long-term debt. With this increase in debt, INFN currently has US$447m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of INFN’s operating efficiency ratios such as ROA here.
Does INFN’s liquid assets cover its short-term commitments?
Looking at INFN’s US$219m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.92x. Having said that, a ratio above 3x may be considered excessive by some investors.
Is INFN’s debt level acceptable?
INFN’s level of debt is appropriate relative to its total equity, at 37%. INFN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. INFN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
INFN’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure INFN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Infinera to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INFN’s future growth? Take a look at our free research report of analyst consensus for INFN’s outlook.
- Historical Performance: What has INFN’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 firstname.lastname@example.org.