Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as AMN Healthcare Services Inc (NYSE:AMN), with a market cap of US$2.65b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at AMN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AMN here.
Does AMN produce enough cash relative to debt?
AMN has built up its total debt levels in the last twelve months, from US$337.5m to US$475.2m , which comprises of short- and long-term debt. With this growth in debt, AMN’s cash and short-term investments stands at US$22.9m , ready to deploy into the business. Additionally, AMN has generated US$171.2m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 36.0%, meaning that AMN’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AMN’s case, it is able to generate 0.36x cash from its debt capital.
Does AMN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$283.2m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$468.5m, with a current ratio of 1.65x. Generally, for Healthcare companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is AMN’s debt level acceptable?
AMN is a relatively highly levered company with a debt-to-equity of 77.1%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In AMN’s case, the ratio of 10.03x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although AMN’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. This is only a rough assessment of financial health, and I’m sure AMN has company-specific issues impacting its capital structure decisions. You should continue to research AMN Healthcare Services to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AMN’s future growth? Take a look at our free research report of analyst consensus for AMN’s outlook.
- Valuation: What is AMN 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 AMN 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.
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.
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