Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Medidata Solutions Inc (NASDAQ:MDSO), with a market capitalization of US$4.4b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at MDSO’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into MDSO here.
How does MDSO’s operating cash flow stack up against its debt?
Over the past year, MDSO has reduced its debt from US$274m to US$94m – this includes both the current and long-term debt. With this reduction in debt, MDSO’s cash and short-term investments stands at US$199m , ready to deploy into the business. Moreover, MDSO has produced US$87m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 93%, meaning that MDSO’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MDSO’s case, it is able to generate 0.93x cash from its debt capital.
Does MDSO’s liquid assets cover its short-term commitments?
With current liabilities at US$162m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.52x. Generally, for Healthcare Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can MDSO service its debt comfortably?
With a debt-to-equity ratio of 16%, MDSO’s debt level may be seen as prudent. MDSO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether MDSO 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 MDSO’s, case, the ratio of 5.25x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving MDSO ample headroom to grow its debt facilities.
MDSO’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for MDSO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Medidata Solutions to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDSO’s future growth? Take a look at our free research report of analyst consensus for MDSO’s outlook.
- Valuation: What is MDSO 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 MDSO 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.