Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Insperity, Inc. (NYSE:NSP) with a market-capitalization of US$5.1b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine NSP’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into NSP here.
Does NSP Produce Much Cash Relative To Its Debt?
NSP's debt levels surged from US$104m to US$208m over the last 12 months – this includes long-term debt. With this growth in debt, NSP's cash and short-term investments stands at US$453m to keep the business going. Additionally, NSP has produced US$272m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 131%, signalling that NSP’s current level of operating cash is high enough to cover debt.
Can NSP pay its short-term liabilities?
At the current liabilities level of US$850m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.15x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Professional Services companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does NSP face the risk of succumbing to its debt-load?
With total debt exceeding equity, NSP is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Although NSP’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for NSP's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Insperity to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NSP’s future growth? Take a look at our free research report of analyst consensus for NSP’s outlook.
- Valuation: What is NSP 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 NSP 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.