Investors pursuing a solid, dependable stock investment can often be led to Dropbox Inc (NASDAQ:DBX), a large-cap worth US$15.90b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the health of the financials determines whether the company continues to succeed. Let’s take a look at Dropbox’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into DBX here. View out our latest analysis for Dropbox
How much cash does DBX generate through its operations?
Over the past year, DBX has reduced its debt from US$295.70m to US$208.80m – this includes both the current and long-term debt. With this debt repayment, DBX’s cash and short-term investments stands at US$430.00m for investing into the business. Moreover, DBX has generated US$330.30m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 158.19%, meaning that DBX’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In DBX’s case, it is able to generate 1.58x cash from its debt capital.
Can DBX pay its short-term liabilities?
At the current liabilities level of US$738.40m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$518.10m, leading to a 0.7x current account ratio. which is under the appropriate industry ratio of 3x.
Can DBX service its debt comfortably?
DBX’s level of debt is appropriate relative to its total equity, at 33.32%. This range is considered safe as DBX is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. DBX’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
DBX’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. This is only a rough assessment of financial health, and I’m sure DBX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Dropbox to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DBX’s future growth? Take a look at our free research report of analyst consensus for DBX’s outlook.
- Valuation: What is DBX 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 DBX 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.