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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as IPG Photonics Corporation (NASDAQ:IPGP), with a market capitalization of US$9.0b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine IPGP’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into IPGP here.
See our latest analysis for IPG Photonics
Does IPGP Produce Much Cash Relative To Its Debt?
IPGP has shrunk its total debt levels in the last twelve months, from US$48m to US$44m – this includes long-term debt. With this debt payback, IPGP's cash and short-term investments stands at US$1.0b , ready to be used for running the business. On top of this, IPGP has generated cash from operations of US$339m in the last twelve months, resulting in an operating cash to total debt ratio of 763%, signalling that IPGP’s operating cash is sufficient to cover its debt.
Can IPGP meet its short-term obligations with the cash in hand?
With current liabilities at US$210m, it seems that the business has been able to meet these obligations given the level of current assets of US$1.8b, with a current ratio of 8.54x. The current ratio is the number you get when you divide 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.
Is IPGP’s debt level acceptable?
IPGP’s level of debt is low relative to its total equity, at 2.0%. IPGP is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
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IPGP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure IPGP has company-specific issues impacting its capital structure decisions. I suggest you continue to research IPG Photonics to get a better picture of the stock by looking at: