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Integer Holdings Corporation (NYSE:ITGR): Time For A Financial Health Check

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Integer Holdings Corporation (NYSE:ITGR) is a small-cap stock with a market capitalization of US$2.7b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into ITGR here.

ITGR’s Debt (And Cash Flows)

ITGR has shrunk its total debt levels in the last twelve months, from US$1.6b to US$953m , which includes long-term debt. With this debt repayment, ITGR currently has US$14m remaining in cash and short-term investments , ready to be used for running the business. On top of this, ITGR has generated US$132m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 14%, indicating that ITGR’s operating cash is less than its debt.

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

Looking at ITGR’s US$172m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.55x. The current ratio is the number you get when you divide current assets by current liabilities. For Medical Equipment companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

NYSE:ITGR Historical Debt, July 1st 2019
NYSE:ITGR Historical Debt, July 1st 2019

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

With a debt-to-equity ratio of 85%, ITGR can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if ITGR’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ITGR, the ratio of 1.88x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

ITGR’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for ITGR's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Integer Holdings to get a better picture of the small-cap by looking at:

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

  2. Valuation: What is ITGR 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 ITGR 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.