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How Financially Strong Is FLIR Systems, Inc. (NASDAQ:FLIR)?

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Stocks with market capitalization between $2B and $10B, such as FLIR Systems, Inc. (NASDAQ:FLIR) with a size of US$6.9b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. FLIR’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 FLIR here.

View our latest analysis for FLIR Systems

Does FLIR Produce Much Cash Relative To Its Debt?

FLIR has built up its total debt levels in the last twelve months, from US$421m to US$803m , which includes long-term debt. With this growth in debt, FLIR currently has US$284m remaining in cash and short-term investments , ready to be used for running the business. Additionally, FLIR has produced cash from operations of US$386m during the same period of time, leading to an operating cash to total debt ratio of 48%, signalling that FLIR’s current level of operating cash is high enough to cover debt.

Does FLIR’s liquid assets cover its short-term commitments?

At the current liabilities level of US$460m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.45x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NasdaqGS:FLIR Historical Debt, June 10th 2019
NasdaqGS:FLIR Historical Debt, June 10th 2019

Does FLIR face the risk of succumbing to its debt-load?

FLIR is a relatively highly levered company with a debt-to-equity of 40%. 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 FLIR's case, the ratio of 26.15x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as FLIR’s high interest coverage is seen as responsible and safe practice.

Next Steps:

FLIR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around FLIR's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure FLIR has company-specific issues impacting its capital structure decisions. I suggest you continue to research FLIR Systems to get a more holistic view of the mid-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for FLIR’s future growth? Take a look at our free research report of analyst consensus for FLIR’s outlook.

  2. Valuation: What is FLIR 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 FLIR is currently mispriced by the market.

  3. 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 editorial-team@simplywallst.com. 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.