Investors pursuing a solid, dependable stock investment can often be led to Atlassian Corporation Plc (NASDAQ:TEAM), a large-cap worth US$27b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to their continued success lies in its financial health. Today we will look at Atlassian’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TEAM here.
Check out our latest analysis for Atlassian
TEAM’s Debt (And Cash Flows)
In the previous 12 months, TEAM’s rose by about US$836m – which includes long-term debt. With this increase in debt, TEAM’s cash and short-term investments stands at US$1.6b to keep the business going. Additionally, TEAM has generated cash from operations of US$389m during the same period of time, leading to an operating cash to total debt ratio of 47%, meaning that TEAM’s current level of operating cash is high enough to cover debt.
Does TEAM’s liquid assets cover its short-term commitments?
With current liabilities at US$513m, the company has been able to meet these obligations given the level of current assets of US$1.8b, with a current ratio of 3.44x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio greater than 3x may be considered high by some.
Can TEAM service its debt comfortably?
Considering Atlassian’s total debt outweighs its equity, the company is deemed highly levered. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. Though, since TEAM is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Although TEAM’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 TEAM’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how TEAM has been performing in the past. You should continue to research Atlassian to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TEAM’s future growth? Take a look at our free research report of analyst consensus for TEAM’s outlook.
- Valuation: What is TEAM 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 TEAM 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.
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.
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