Investors are always looking for growth in small-cap stocks like Synaptics Incorporated (NASDAQ:SYNA), with a market cap of US$1.1b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into SYNA here.
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SYNA’s Debt (And Cash Flows)
SYNA's debt level has been constant at around US$464m over the previous year which accounts for long term debt. At this current level of debt, SYNA's cash and short-term investments stands at US$324m to keep the business going. Moreover, SYNA has generated US$119m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 26%, meaning that SYNA’s current level of operating cash is high enough to cover debt.
Does SYNA’s liquid assets cover its short-term commitments?
Looking at SYNA’s US$240m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.19x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can SYNA service its debt comfortably?
With debt reaching 64% of equity, SYNA may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Although SYNA’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 SYNA's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SYNA's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Synaptics to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SYNA’s future growth? Take a look at our free research report of analyst consensus for SYNA’s outlook.
- Valuation: What is SYNA 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 SYNA 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.