Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Jenoptik AG (ETR:JEN), with a market cap of €1.8b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. JEN’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into JEN here.

View our latest analysis for Jenoptik

Does JEN Produce Much Cash Relative To Its Debt?

JEN’s debt level has been constant at around €133m over the previous year – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at €118m to keep the business going. Moreover, JEN has generated cash from operations of €119m over the same time period, leading to an operating cash to total debt ratio of 90%, meaning that JEN’s operating cash is sufficient to cover its debt.

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

With current liabilities at €218m, it appears that the company has been able to meet these obligations given the level of current assets of €474m, with a current ratio of 2.18x. The current ratio is the number you get when you divide current assets by current liabilities. For Electronic companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

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

JEN’s level of debt is appropriate relative to its total equity, at 24%. JEN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether JEN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In JEN’s, case, the ratio of 89.38x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving JEN ample headroom to grow its debt facilities.

Next Steps:

JEN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure JEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Jenoptik to get a more holistic view of the stock by looking at:

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

2. Valuation: What is JEN 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 JEN 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.