With a market capitalization of €19b, Infineon Technologies AG (ETR:IFX) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for IFX to determine is solvency and liquidity and whether the stock is a sound investment.
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IFX’s Debt (And Cash Flows)
Over the past year, IFX has reduced its debt from €1.8b to €1.5b – this includes long-term debt. With this debt payback, IFX's cash and short-term investments stands at €1.9b , ready to be used for running the business. Additionally, IFX has produced cash from operations of €1.6b over the same time period, resulting in an operating cash to total debt ratio of 105%, signalling that IFX’s operating cash is sufficient to cover its debt.
Does IFX’s liquid assets cover its short-term commitments?
At the current liabilities level of €1.9b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.77x. The current ratio is calculated by dividing 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.
Is IFX’s debt level acceptable?
With debt at 23% of equity, IFX may be thought of as appropriately levered. This range is considered safe as IFX is not taking on too much debt obligation, which may be constraining for future growth. We can test if IFX’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In IFX's case, the ratio of 32.8x suggests that interest is amply covered. Large-cap investments like IFX are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
IFX has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure IFX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Infineon Technologies to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IFX’s future growth? Take a look at our free research report of analyst consensus for IFX’s outlook.
- Valuation: What is IFX 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 IFX 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.