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Is National Instruments Corporation (NASDAQ:NATI) A Financially Strong Company?

Mid-caps stocks, like National Instruments Corporation (NASDAQ:NATI) with a market capitalization of US$6.6b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at NATI’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into NATI here.

See our latest analysis for National Instruments

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

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For National Instruments, investors should not worry about its debt levels because the company has none! 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 NATI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NasdaqGS:NATI Historical Debt December 6th 18

Can NATI pay its short-term liabilities?

Given zero long-term debt on its balance sheet, National Instruments has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at NATI’s US$276m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$977m, with a current ratio of 3.54x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Next Steps:

NATI 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, though, some level of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for NATI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research National Instruments to get a more holistic view of the stock by looking at:

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

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 editorial-team@simplywallst.com.