Stocks with market capitalization between $2B and $10B, such as Talend SA (NASDAQ:TLND) with a size of US$2.0b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at TLND’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 TLND here.
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Does TLND produce enough cash relative to debt?
TLND has built up its total debt levels in the last twelve months, from US$15k to US$983k , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$93m , ready to deploy into the business. Additionally, TLND has generated cash from operations of US$308k during the same period of time, resulting in an operating cash to total debt ratio of 31%, meaning that TLND’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In TLND’s case, it is able to generate 0.31x cash from its debt capital.
Can TLND meet its short-term obligations with the cash in hand?
With current liabilities at US$133m, it appears that the company has been able to meet these obligations given the level of current assets of US$153m, with a current ratio of 1.15x. For Software companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does TLND face the risk of succumbing to its debt-load?
TLND’s level of debt is low relative to its total equity, at 3.2%. TLND is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for TLND, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
TLND’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure TLND has company-specific issues impacting its capital structure decisions. I recommend you continue to research Talend to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TLND’s future growth? Take a look at our free research report of analyst consensus for TLND’s outlook.
- Valuation: What is TLND 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 TLND 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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.