Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Cypress Semiconductor Corporation (NASDAQ:CY) with a market-capitalization of US$5.6b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine CY’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Cypress Semiconductor’s financial health, so you should conduct further analysis into CY here.
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CY’s Debt (And Cash Flows)
CY has sustained its debt level by about US$914m over the last 12 months which accounts for long term debt. At this current level of debt, the current cash and short-term investment levels stands at US$285m to keep the business going. On top of this, CY has generated US$501m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 55%, meaning that CY’s debt is appropriately covered by operating cash.
Does CY’s liquid assets cover its short-term commitments?
At the current liabilities level of US$534m, it seems that the business has been able to meet these obligations given the level of current assets of US$972m, with a current ratio of 1.82x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Semiconductor companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does CY face the risk of succumbing to its debt-load?
CY is a relatively highly levered company with a debt-to-equity of 43%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether CY 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 CY's, case, the ratio of 4.16x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CY ample headroom to grow its debt facilities.
Although CY’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. Since there is also no concerns around CY'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 CY has company-specific issues impacting its capital structure decisions. I suggest you continue to research Cypress Semiconductor to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CY’s future growth? Take a look at our free research report of analyst consensus for CY’s outlook.
- Valuation: What is CY 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 CY 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.
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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.