Yahoo Finance Is Synaptics Incorporated’s (NASDAQ:SYNA) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Synaptics Incorporated (NASDAQ:SYNA), with a market cap of US$1.2b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Semiconductor industry, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into SYNA here.
Does SYNA produce enough cash relative to debt?
Over the past year, SYNA has maintained its debt levels at around US$455m comprising of short- and long-term debt. At this stable level of debt, SYNA’s cash and short-term investments stands at US$263m for investing into the business. Moreover, SYNA has generated US$110m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 24%, meaning that SYNA’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In SYNA’s case, it is able to generate 0.24x cash from its debt capital.
Can SYNA pay its short-term liabilities?
Looking at SYNA’s most recent US$326m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.42x. Generally, for Semiconductor companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does SYNA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 64%, SYNA can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SYNA is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
SYNA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, 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 SYNA has company-specific issues impacting its capital structure decisions. You should continue to research Synaptics to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SYNA’s future growth? Take a look at our free research report of analyst consensus for SYNA’s outlook.
Valuation: What is SYNA 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 SYNA 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.
