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What does Macquarie Infrastructure Corporation's (NYSE:MIC) Balance Sheet Tell Us About Its Future?

Simply Wall St

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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Macquarie Infrastructure Corporation (NYSE:MIC), with a market capitalization of US$3.5b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. MIC’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 MIC here.

See our latest analysis for Macquarie Infrastructure

MIC’s Debt (And Cash Flows)

MIC's debt levels have fallen from US$3.7b to US$3.3b over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$603m to keep the business going. On top of this, MIC has produced US$513m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 15%, meaning that MIC’s debt is not covered by operating cash.

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

At the current liabilities level of US$920m, it seems that the business has been able to meet these commitments with a current assets level of US$1.5b, leading to a 1.67x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Infrastructure companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

NYSE:MIC Historical Debt, June 5th 2019

Is MIC’s debt level acceptable?

Since total debt growth have outpaced equity growth, MIC is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 MIC's case, the ratio of 2.13x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.

Next Steps:

Although MIC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around MIC's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MIC's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Macquarie Infrastructure to get a more holistic view of the mid-cap by looking at:

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