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Mid-caps stocks, like Integra LifeSciences Holdings Corporation (NASDAQ:IART) with a market capitalization of US$4.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine IART’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. Don’t forget that this is a general and concentrated examination of Integra LifeSciences Holdings’s financial health, so you should conduct further analysis into IART here.
Does IART produce enough cash relative to debt?
IART has built up its total debt levels in the last twelve months, from US$1.2b to US$1.4b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$213m for investing into the business. On top of this, IART has produced cash from operations of US$169m in the last twelve months, leading to an operating cash to total debt ratio of 12%, indicating that IART’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In IART’s case, it is able to generate 0.12x cash from its debt capital.
Does IART’s liquid assets cover its short-term commitments?
At the current liabilities level of US$258m, it seems that the business has been able to meet these commitments with a current assets level of US$828m, leading to a 3.21x current account ratio. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is IART’s debt level acceptable?
IART is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if IART’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For IART, the ratio of 3.72x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as IART’s high interest coverage is seen as responsible and safe practice.
IART’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around IART’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure IART has company-specific issues impacting its capital structure decisions. I recommend you continue to research Integra LifeSciences Holdings to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IART’s future growth? Take a look at our free research report of analyst consensus for IART’s outlook.
- Valuation: What is IART 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 IART 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 firstname.lastname@example.org. 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.