Mid-caps stocks, like RingCentral, Inc. (NYSE:RNG) with a market capitalization of US$9.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. RNG’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into RNG here.
Does RNG Produce Much Cash Relative To Its Debt?
In the previous 12 months, RNG’s rose by about US$367m – which includes long-term debt. With this growth in debt, RNG currently has US$566m remaining in cash and short-term investments to keep the business going. Moreover, RNG has generated cash from operations of US$72m over the same time period, resulting in an operating cash to total debt ratio of 20%, meaning that RNG’s current level of operating cash is not high enough to cover debt.
Can RNG meet its short-term obligations with the cash in hand?
At the current liabilities level of US$199m, the company has been able to meet these commitments with a current assets level of US$708m, leading to a 3.55x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Does RNG face the risk of succumbing to its debt-load?
With total debt exceeding equity, RNG is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since RNG is currently unprofitable, 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.
Although RNG’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure RNG has company-specific issues impacting its capital structure decisions. I suggest you continue to research RingCentral to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RNG’s future growth? Take a look at our free research report of analyst consensus for RNG’s outlook.
- Valuation: What is RNG 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 RNG 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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