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Has Intel Corporation (NASDAQ:INTC) Got Enough Cash?

Amar Chadha

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With a market capitalization of US$225b, Intel Corporation (NASDAQ:INTC) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for INTC, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.

View our latest analysis for Intel

How does INTC’s operating cash flow stack up against its debt?

Over the past year, INTC has maintained its debt levels at around US$26b – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$12b for investing into the business. On top of this, INTC has generated cash from operations of US$29b over the same time period, leading to an operating cash to total debt ratio of 112%, indicating that INTC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In INTC’s case, it is able to generate 1.12x cash from its debt capital.

Does INTC’s liquid assets cover its short-term commitments?

At the current liabilities level of US$17b, it appears that the company has been able to meet these commitments with a current assets level of US$29b, leading to a 1.73x current account ratio. Generally, for Semiconductor companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

NASDAQGS:INTC Historical Debt February 13th 19

Does INTC face the risk of succumbing to its debt-load?

INTC’s level of debt is appropriate relative to its total equity, at 35%. This range is considered safe as INTC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if INTC’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In INTC’s case, the ratio of 1107x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes INTC and other large-cap investments thought to be safe.

Next Steps:

INTC’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure INTC has company-specific issues impacting its capital structure decisions. You should continue to research Intel to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for INTC’s future growth? Take a look at our free research report of analyst consensus for INTC’s outlook.
  2. Valuation: What is INTC 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 INTC 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 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 editorial-team@simplywallst.com.