Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Salesforcecom inc (NYSE:CRM). With a market valuation of USD $77.32B, CRM is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for CRM to determine is solvency and liquidity and whether the stock is a sound investment. See our latest analysis for CRM
Is CRM’s level of debt at an acceptable level?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. In the case of CRM, the debt-to-equity ratio is 30.55%, which means its debt level does not pose a threat to its operations right now. 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 at least three times its interest payments is considered financially sound. CRM’s profits only covers interest 0.54 times, which is deemed as inadequate. This means lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Does CRM generate an acceptable amount of cash through operations?
A simple way to determine whether the company has put debt into good use is to look at its operating cash flow against its debt obligation. This is also a test for whether CRM has the ability to repay its debt with cash from its business, which is less of a concern for large companies. Last year, CRM’s operating cash flow was 0.94x its current debt. This is a good sign, as over half of CRM’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.
Are you a shareholder? CRM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Given that CRM’s financial position may change, You should continue examining market expectations for CRM’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 financing is an important source of funding for companies seeking to grow through new projects and investments. CRM’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.