Analyzing debt ratios and liquidity can tell you a lot about how a company is managed. Significant cash reserves is a positive indicator that management has made it a priority to conserve cash to have extra on hand to both fuel growth activities as well as serve as a cushion during market downturns. Minimal debt reflects a company that has not leveraged its assets to fund growth. These attributes, liquidity and minimal debt, belong to the mid-cap stocks on our list today. See the summaries and graphs below to begin your own evaluation.
The Long-Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a quick ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able the company is to meet current obligations using liquid assets).
We first looked for mid cap stocks. We then screened for businesses that operate with little to no long-term debt (Long-Term D/E Ratio<.1). We next screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these mid-cap stocks should have higher valuations? Use our list to help with your own analysis.
1) Total System Services, Inc. (TSS)
|Long-Term Debt/Equity Ratio||0.04|
Total System Services, Inc. provides electronic payment processing and other services to card-issuing and merchant acquiring institutions. The company offers issuer account solutions, including processing the card application, initiating service for the cardholder, processing each card transaction for the issuing retailer or financial institution, and accumulating the account's transactions; fraud management services for monitoring the unauthorized use of accounts; and other services, such as customized communications to cardholders, and information verification associated with granting credit, debt collection, and customer service.
It also provides processing services, acquiring solutions, related systems, and integrated support services that consist of processing various payment forms, which include credit, debit, prepaid, electronic benefit transfer, and electronic check; authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; merchant billing services; and point-of-sale equipment sales and service. In addition, the company offers merchant support and underwriting, and business and value-added services, as well as prepaid cards for businesses. Total System Services, Inc. provides its services through online accounting and electronic payment processing systems. It operates primarily in the United States, Europe, Canada, Mexico, the Caribbean, the Middle East, Africa, the Asia Pacific, and Brazil. The company was founded in 1982 and is based in Columbus, Georgia.
2) American Eagle Outfitters, Inc. (AEO)
|Long-Term Debt/Equity Ratio||0.00|
American Eagle Outfitters, Inc., together with its subsidiaries, operates as an apparel and accessories retailer in the United States and Canada. It operates a network of retail stores that offer denims, sweaters, graphic T-shirts, fleece, outerwear, and accessories for 15 to 25-year old men and women under the American Eagle Outfitters brand name; a collection of Dormwear, intimates, and personal care products for girls under the aerie brand name; and clothing and accessories for kids aged between 2 to 14 under the 77kids brand name. As of January 28, 2012, the company operated 911 American Eagle Outfitters stores, 158 aerie stand-alone stores, and 21 77kids stores; and 21 franchised stores through its franchise partners in 10 countries. It also sells and ships merchandise via its e-commerce Websites, including ae.com, aerie.com, and 77kids.com to 77 countries worldwide. American Eagle Outfitters, Inc. was founded in 1977 and is headquartered in Pittsburgh, Pennsylvania.
3) Align Technology Inc. (ALGN)
|Industry||Medical Appliances & Equipment|
|Long-Term Debt/Equity Ratio||0.00|
Align Technology, Inc., a medical device company, designs, manufactures, and markets clear aligner systems or Invisalign systems, intra-oral scanners, and computer-aided design and computer-aided manufacturing restorative models used in dentistry, orthodontics, and dental records storage in North America and internationally.
The company's clear aligner products include Invisalign Full for the treatment of malocclusions; Invisalign Express and Invisalign Lite solutions for less complex orthodontic cases; Invisalign Teen, which is primarily marketed to orthodontists for treating malocclusion in teenage patients; Invisalign Assist for use in anterior alignment and aesthetically-oriented cases; and Vivera retainers for invisalign and non-invisalign patients. It also offers ancillary products comprising cleaning material and adjusting tools used by dental professionals during the course of treatment.
In addition, the company provides iTero scanners; iOC scanners; and iTero dual scanner, which includes both the iTero restorative software and the iOC orthodontic software, as well as services comprising iTero restorative and OrthoCAD services. Further, it offers CAD/CAM services, such as iTero Models and Dies; OrthoCAD iCast and OrthoCAD iRecord that provides a digital alternative to traditional stone cast models, which allows for simplified storage and digital record retrieval; and OrthoCAD iQ, a computer-guided system for optimal placement of traditional brackets and customized indirect bonding tray system. The company distributes its products primarily directly to orthodontists and general practitioner dentists, as well as restorative dentists, including prosthodontists, periodontists, and oral surgeons. Align Technology, Inc. was founded in 1997 and is headquartered in San Jose, California.
4) Mindray Medical International Limited (MR)
|Industry||Medical Instruments & Supplies|
|Long-Term Debt/Equity Ratio||0.07|
Mindray Medical International Limited, through its subsidiary, Shenzhen Mindray, develops, manufactures, and markets medical devices worldwide. It operates in three segments: Patient Monitoring and Life Support Products, In-Vitro Diagnostic Products, and Medical Imaging Systems. The Patient Monitoring and Life Support Products segment offers patient monitoring devices that track the physiological parameters of patients, such as heart rate, blood pressure, respiration, and temperature. This segment's products include single and multiple-parameter monitors, mobile and portable multifunction monitors, central stations that collect and display multiple patient data on a single screen, electro-cardiogram monitoring devices, veterinary monitoring devices, anesthesia machines, defibrillators, surgical beds, surgical lights ceiling pendants, syringes, infusion pumps, and ventilators.
Its products are suitable for adult, pediatric, and neonatal patients and are used principally in hospital intensive care units, operating rooms, and emergency rooms. The In-Vitro Diagnostic Products segment offers data and analysis on blood, urine, and other bodily fluid samples for clinical diagnosis and treatment, as well as semi-automated and fully-automated in-vitro diagnostic products for laboratories, clinics, and hospitals. This segment's product portfolio comprises hematology, biochemistry, urine sediment, and microbiology analyzers. The Medical Imaging Systems segment provides ultrasound systems for use in medical fields, such as urology, gynecology, obstetrics, and cardiology; digital radiography systems; magnetic resonance imaging systems; and picture archiving and communication systems. The company sells its products directly to hospitals, clinics, and government health bureaus, as well as to original design manufacturers and original equipment manufacturers. Mindray Medical International Limited was founded in 1991 and is headquartered in Shenzhen, the People's Republic of China.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/01/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.