Stocks with market capitalization between $2B and $10B, such as Mellanox Technologies Ltd (NASDAQ:MLNX) with a size of USD $2.55B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. I recommend you look at the following hurdles to assess MLNX’s financial health. View our latest analysis for Mellanox Technologies
Is MLNX’s level of debt at an acceptable level?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of MLNX, the debt-to-equity ratio is 19.07%, which indicates that its debt is at an acceptable level.
Can MLNX meet its short-term obligations with the cash in hand?
A different measure of financial health is measured by its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. To assess this, I compare MLNX’s cash and other liquid assets against its upcoming debt. Our analysis shows that MLNX is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Are you a shareholder? Although MLNX’s debt level is relatively low, it has the ability to efficiently utilise its borrowings to generate ample cash flow coverage. Since MLNX’s capital structure may change, You should continue researching market expectations for MLNX’s future growth on our free analysis platform.
Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. MLNX’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass 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.