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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Littelfuse, Inc. (NASDAQ:LFUS), with a market capitalization of US$4.7b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. LFUS’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into LFUS here.
Check out our latest analysis for Littelfuse
How much cash does LFUS generate through its operations?
LFUS’s debt levels surged from US$496m to US$695m over the last 12 months , which includes long-term debt. With this increase in debt, LFUS’s cash and short-term investments stands at US$490m , ready to deploy into the business. Additionally, LFUS has generated cash from operations of US$332m over the same time period, resulting in an operating cash to total debt ratio of 48%, meaning that LFUS’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LFUS’s case, it is able to generate 0.48x cash from its debt capital.
Can LFUS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$295m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.5x. 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 LFUS face the risk of succumbing to its debt-load?
With debt reaching 47% of equity, LFUS may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In LFUS’s case, the ratio of 13.35x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as LFUS’s high interest coverage is seen as responsible and safe practice.