Is The Trade Desk, Inc. (NASDAQ:TTD) A Financially Strong Company?

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as The Trade Desk, Inc. (NASDAQ:TTD), with a market cap of US$8.7b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at TTD’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 TTD here.

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TTD’s Debt (And Cash Flows)

In the previous 12 months, TTD's rose by about US$80m – which includes long-term debt. With this ramp up in debt, TTD's cash and short-term investments stands at US$218m to keep the business going. Additionally, TTD has generated US$85m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 106%, indicating that TTD’s current level of operating cash is high enough to cover debt.

Can TTD pay its short-term liabilities?

With current liabilities at US$583m, it appears that the company has been able to meet these obligations given the level of current assets of US$945m, with a current ratio of 1.62x. The current ratio is calculated by dividing current assets by current liabilities. For Software companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is TTD’s debt level acceptable?

With debt at 19% of equity, TTD may be thought of as appropriately levered. This range is considered safe as TTD is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

TTD has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure TTD has company-specific issues impacting its capital structure decisions. I suggest you continue to research Trade Desk to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for TTD’s future growth? Take a look at our free research report of analyst consensus for TTD’s outlook.
2. Valuation: What is TTD 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 TTD is currently mispriced by the market.
3. 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.