Mid-caps stocks, like MKS Instruments, Inc. (NASDAQ:MKSI) with a market capitalization of US$3.6b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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 MKSI’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MKSI here.
How much cash does MKSI generate through its operations?
MKSI’s debt levels have fallen from US$440m to US$349m over the last 12 months , which also accounts for long term debt. With this debt repayment, MKSI’s cash and short-term investments stands at US$620m for investing into the business. Additionally, MKSI has produced cash from operations of US$359m over the same time period, resulting in an operating cash to total debt ratio of 103%, indicating that MKSI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MKSI’s case, it is able to generate 1.03x cash from its debt capital.
Can MKSI pay its short-term liabilities?
With current liabilities at US$262m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.38x. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Can MKSI service its debt comfortably?
MKSI’s level of debt is appropriate relative to its total equity, at 19%. This range is considered safe as MKSI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether MKSI 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 MKSI’s, case, the ratio of 33.05x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving MKSI ample headroom to grow its debt facilities.
MKSI’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure MKSI has company-specific issues impacting its capital structure decisions. I suggest you continue to research MKS Instruments to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MKSI’s future growth? Take a look at our free research report of analyst consensus for MKSI’s outlook.
- Valuation: What is MKSI 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 MKSI 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.