- Oops!Something went wrong.Please try again later.
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 Switch, Inc. (NYSE:SWCH), with a market capitalization of US$3.2b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. SWCH’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 SWCH here.
Does SWCH Produce Much Cash Relative To Its Debt?
SWCH's debt level has been constant at around US$610m over the previous year including long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$87m , ready to be used for running the business. On top of this, SWCH has generated cash from operations of US$191m over the same time period, leading to an operating cash to total debt ratio of 31%, meaning that SWCH’s current level of operating cash is high enough to cover debt.
Does SWCH’s liquid assets cover its short-term commitments?
With current liabilities at US$72m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for IT companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is SWCH’s debt level acceptable?
With debt reaching 86% of equity, SWCH may be thought of as relatively highly levered. 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 SWCH’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 SWCH, the ratio of 2.01x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
SWCH’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 SWCH'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 SWCH has company-specific issues impacting its capital structure decisions. I recommend you continue to research Switch to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for SWCH’s future growth? Take a look at our free research report of analyst consensus for SWCH’s outlook.
Valuation: What is SWCH 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 SWCH 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.