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Conduent Incorporated (NYSE:CNDT): Time For A Financial Health Check

Stocks with market capitalization between $2B and $10B, such as Conduent Incorporated (NYSE:CNDT) with a size of US$3.0b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine CNDT’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Conduent’s financial health, so you should conduct further analysis into CNDT here.

See our latest analysis for Conduent

Does CNDT Produce Much Cash Relative To Its Debt?

CNDT has shrunk its total debt levels in the last twelve months, from US$2.1b to US$1.6b , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$756m to keep the business going. Additionally, CNDT has generated cash from operations of US$283m over the same time period, resulting in an operating cash to total debt ratio of 18%, meaning that CNDT’s operating cash is less than its debt.

Can CNDT pay its short-term liabilities?

At the current liabilities level of US$1.2b, the company has been able to meet these commitments with a current assets level of US$2.0b, leading to a 1.64x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for IT companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NYSE:CNDT Historical Debt, April 10th 2019
NYSE:CNDT Historical Debt, April 10th 2019

Is CNDT’s debt level acceptable?

CNDT is a relatively highly levered company with a debt-to-equity of 47%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since CNDT is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although CNDT’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. I admit this is a fairly basic analysis for CNDT's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Conduent to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CNDT’s future growth? Take a look at our free research report of analyst consensus for CNDT’s outlook.

  2. Valuation: What is CNDT 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 CNDT 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.

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