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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like OSI Systems, Inc. ( NASDAQ:OSIS ), with a market cap of US$2.0b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at OSIS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into OSIS here .
OSIS’s Debt (And Cash Flows)
OSIS's debt levels have fallen from US$477m to US$381m over the last 12 months , which also accounts for long term debt. With this debt repayment, OSIS's cash and short-term investments stands at US$108m , ready to be used for running the business. On top of this, OSIS has generated US$105m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 28%, signalling that OSIS’s current level of operating cash is high enough to cover debt.
Can OSIS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$426m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.55x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Electronic companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can OSIS service its debt comfortably?
OSIS is a relatively highly levered company with a debt-to-equity of 72%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether OSIS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In OSIS's, case, the ratio of 4.67x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving OSIS ample headroom to grow its debt facilities.
Although OSIS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around OSIS's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for OSIS's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research OSI Systems to get a better picture of the mid-cap by looking at:
- Future Outlook : What are well-informed industry analysts predicting for OSIS’s future growth? Take a look at our free research report of analyst consensus for OSIS’s outlook.
- Valuation : What is OSIS 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 OSIS 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 firstname.lastname@example.org . 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.