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Stocks with market capitalization between $2B and $10B, such as Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH) with a size of NZ$8.6b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at FPH’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Fisher & Paykel Healthcare's financial health, so you should conduct further analysis into FPH here.
Does FPH Produce Much Cash Relative To Its Debt?
FPH has sustained its debt level by about NZ$87m over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at NZ$141m to keep the business going. On top of this, FPH has generated cash from operations of NZ$253m in the last twelve months, resulting in an operating cash to total debt ratio of 292%, meaning that FPH’s debt is appropriately covered by operating cash.
Can FPH meet its short-term obligations with the cash in hand?
With current liabilities at NZ$184m, the company has been able to meet these commitments with a current assets level of NZ$455m, leading to a 2.47x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Medical Equipment companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does FPH face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 9.5%, FPH's debt level is relatively low. FPH is not taking on too much debt commitment, which may be constraining for future growth.
FPH has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how FPH has been performing in the past. You should continue to research Fisher & Paykel Healthcare to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FPH’s future growth? Take a look at our free research report of analyst consensus for FPH’s outlook.
- Valuation: What is FPH 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 FPH 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 email@example.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.