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Is Masimo Corporation's (NASDAQ:MASI) Liquidity Good Enough?

Simply Wall St

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Masimo Corporation (NASDAQ:MASI), with a market cap of US$6.8b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. MASI’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. Don’t forget that this is a general and concentrated examination of Masimo's financial health, so you should conduct further analysis into MASI here.

See our latest analysis for Masimo

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

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Masimo has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with MASI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NasdaqGS:MASI Historical Debt, April 25th 2019

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

Given zero long-term debt on its balance sheet, Masimo has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$148m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.32x. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.

Next Steps:

MASI has zero-debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, but some degree of debt may also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for MASI's financial health. Other important fundamentals need to be considered alongside. You should continue to research Masimo to get a more holistic view of the stock by looking at:

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