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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as iRobot Corporation (NASDAQ:IRBT), with a market capitalization of US$3.5b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. IRBT’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into IRBT here.
Can IRBT service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For iRobot, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with IRBT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does IRBT’s liquid assets cover its short-term commitments?
Since iRobot doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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 IRBT’s US$214m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$514m, with a current ratio of 2.41x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Consumer Durables companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
IRBT has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, though, some level of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven't considered other factors such as how IRBT has performed in the past. You should continue to research iRobot to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IRBT’s future growth? Take a look at our free research report of analyst consensus for IRBT’s outlook.
- Valuation: What is IRBT 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 IRBT 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.