Stocks with market capitalization between $2B and $10B, such as National Instruments Corporation (NASDAQ:NATI) with a size of US$5.4b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine NATI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NATI here.
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NATI’s Debt (And Cash Flows)
NATI has increased its debt level by about US$54m over the last 12 months – which includes long-term debt. With this ramp up in debt, NATI currently has US$480m remaining in cash and short-term investments to keep the business going. Moreover, NATI has produced US$277m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 510%, indicating that NATI’s operating cash is sufficient to cover its debt.
Can NATI pay its short-term liabilities?
Looking at NATI’s US$288m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$966m, leading to a 3.36x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Does NATI face the risk of succumbing to its debt-load?
With debt at 4.5% of equity, NATI may be thought of as having low leverage. NATI is not taking on too much debt commitment, which may be constraining for future growth.
NATI’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure NATI has company-specific issues impacting its capital structure decisions. I recommend you continue to research National Instruments to get a better picture of the stock by looking at:
- 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.
- 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.
- 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.
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