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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Insperity, Inc. (NYSE:NSP), with a market cap of US$5.1b, 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. Let’s take a look at NSP’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NSP here.
NSP’s Debt (And Cash Flows)
Over the past year, NSP has ramped up its debt from US$104m to US$208m , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$453m to keep the business going. On top of this, NSP has produced US$272m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 131%, meaning that NSP’s debt is appropriately covered by operating cash.
Can NSP meet its short-term obligations with the cash in hand?
With current liabilities at US$850m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.15x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Professional Services companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does NSP face the risk of succumbing to its debt-load?
With total debt exceeding equity, NSP is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Although NSP’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 NSP's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for NSP's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Insperity to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NSP’s future growth? Take a look at our free research report of analyst consensus for NSP’s outlook.
- Valuation: What is NSP 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 NSP 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.