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Has InterDigital, Inc. (NASDAQ:IDCC) Got Enough Cash?

Simply Wall St

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as InterDigital, Inc. (NASDAQ:IDCC), with a market cap of US$2.2b, often get neglected by retail investors. 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. IDCC’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into IDCC here.

View our latest analysis for InterDigital

Does IDCC Produce Much Cash Relative To Its Debt?

IDCC has built up its total debt levels in the last twelve months, from US$285m to US$317m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$946m to keep the business going. On top of this, IDCC has produced cash from operations of US$147m over the same time period, leading to an operating cash to total debt ratio of 46%, meaning that IDCC’s current level of operating cash is high enough to cover debt.

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

At the current liabilities level of US$179m, it seems that the business has been able to meet these commitments with a current assets level of US$1.0b, leading to a 5.71x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.

NasdaqGS:IDCC Historical Debt, March 11th 2019

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

IDCC’s level of debt is appropriate relative to its total equity, at 34%. This range is considered safe as IDCC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether IDCC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In IDCC’s, case, the ratio of 2.93x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.

Next Steps:

IDCC’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 exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how IDCC has been performing in the past. I suggest you continue to research InterDigital to get a better picture of the stock by looking at:

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

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 editorial-team@simplywallst.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.