The size of Micron Technology Inc (NASDAQ:MU), a US$72.57B large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the key to their continued success lies in its financial health. I will provide an overview of Micron Technology’s financial liquidity and leverage to give you an idea of Micron Technology’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into MU here. See our latest analysis for Micron Technology
How much cash does MU generate through its operations?
MU’s debt levels surged from US$9.91B to US$11.16B over the last 12 months , which is made up of current and long term debt. With this growth in debt, MU currently has US$5.43B remaining in cash and short-term investments for investing into the business. On top of this, MU has produced cash from operations of US$8.15B during the same period of time, resulting in an operating cash to total debt ratio of 73.09%, signalling that MU’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MU’s case, it is able to generate 0.73x cash from its debt capital.
Can MU meet its short-term obligations with the cash in hand?
Looking at MU’s most recent US$5.36B liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$12.46B, with a current ratio of 2.33x. 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.
Can MU service its debt comfortably?
MU’s level of debt is appropriate relative to its total equity, at 35.12%. MU is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MU is able to meet its debt obligations by looking at the net interest coverage ratio. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. For MU, the ratio of 25.73x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes MU and other large-cap investments thought to be safe.
MU’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure MU has company-specific issues impacting its capital structure decisions. I recommend you continue to research Micron Technology to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MU’s future growth? Take a look at our free research report of analyst consensus for MU’s outlook.
- Valuation: What is MU 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 MU 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 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.