Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
8x8, Inc. (NYSE:EGHT) is a small-cap stock with a market capitalization of US$2.2b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that EGHT is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into EGHT here.
EGHT’s Debt (And Cash Flows)
Over the past year, EGHT has borrowed debt capital of around US$216m – which includes long-term debt. With this ramp up in debt, EGHT's cash and short-term investments stands at US$346m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of EGHT’s operating efficiency ratios such as ROA here.
Can EGHT pay its short-term liabilities?
With current liabilities at US$75m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.32x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high.
Can EGHT service its debt comfortably?
EGHT is a relatively highly levered company with a debt-to-equity of 87%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since EGHT is presently 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.
EGHT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around EGHT's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for EGHT's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research 8x8 to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EGHT’s future growth? Take a look at our free research report of analyst consensus for EGHT’s outlook.
- Historical Performance: What has EGHT's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 email@example.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.