InterDigital Inc (IDCC)

[FISH21049]

Is InterDigital Inc (NASDAQ:IDCC) As Financially Strong As Its Balance Sheet Indicates?
Simply Wall St. Andy Nguyen
Simply Wall St.December 28, 2017

Stocks with market capitalization between $2B and $10B, such as InterDigital Inc (NASDAQ:IDCC) with a size of $2.63B, do not attract as much attention from the investing community as do the small-caps and large-caps. 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. I’ve put together a small checklist, which I believe provides a ballpark estimate of their financial health status. View our latest analysis for InterDigital

Is IDCC’s level of debt at an acceptable level? (SEE CHART)

A substantially higher debt poses a significant threat to a company’s profitability during a downturn. IDCC’s debt-to-equity ratio stands at 33.87%, which means its risk of facing a debt-overhang is very low. We can test if IDCC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings (EBIT) should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. In IDCC’s case, its interest is excessively covered by its earnings as the ratio sits at 33.71x. This means lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Can IDCC pay its short-term liabilities? (SEE CHART)

A different measure of financial health is measured by its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. To assess this, I compare IDCC’s cash and other liquid assets against its upcoming debt. Our analysis shows that IDCC is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.

Next Steps:
Are you a shareholder? IDCC’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Since IDCC’s capital structure may change over time, I recommend exploring market expectations for IDCC’s future growth on our free analysis platform.

Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. After all, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. IDCC’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

To help readers see pass 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.

https://finance.yahoo.com/news/interdigital-inc-nasdaq-idcc-financially-222509395.html