Yahoo Finance Is Astronics Corporation (NASDAQ:ATRO) A Financially Sound Company?
While small-cap stocks, such as Astronics Corporation (NASDAQ:ATRO) with its market cap of US$1.0b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into ATRO here.
How much cash does ATRO generate through its operations?
ATRO has built up its total debt levels in the last twelve months, from US$177m to US$260m , which comprises of short- and long-term debt. With this increase in debt, ATRO currently has US$5m remaining in cash and short-term investments , ready to deploy into the business. Additionally, ATRO has generated US$31m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 12%, meaning that ATRO’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ATRO’s case, it is able to generate 0.12x cash from its debt capital.
Can ATRO meet its short-term obligations with the cash in hand?
With current liabilities at US$118m, it appears that the company has been able to meet these obligations given the level of current assets of US$366m, with a current ratio of 3.11x. However, a ratio greater than 3x may be considered as quite high, and some might argue ATRO could be holding too much capital in a low-return investment environment.
Is ATRO’s debt level acceptable?
ATRO is a relatively highly levered company with a debt-to-equity of 70%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether ATRO 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 ATRO’s, case, the ratio of 6.93x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ATRO’s high interest coverage is seen as responsible and safe practice.
Next Steps:
ATRO’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ATRO’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Astronics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ATRO’s future growth? Take a look at our free research report of analyst consensus for ATRO’s outlook.
Valuation: What is ATRO 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 ATRO 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
