Does Allscripts Healthcare Solutions Inc’s (NASDAQ:MDRX) Debt Level Pose A Problem?
Stocks with market capitalization between $2B and $10B, such as Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) with a size of US$2.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at MDRX’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. Don’t forget that this is a general and concentrated examination of Allscripts Healthcare Solutions’s financial health, so you should conduct further analysis into MDRX here.
See our latest analysis for Allscripts Healthcare Solutions
How much cash does MDRX generate through its operations?
Over the past year, MDRX has ramped up its debt from US$1.3b to US$1.6b , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$136m , ready to deploy into the business. On top of this, MDRX has produced US$237m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 14%, signalling that MDRX’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In MDRX’s case, it is able to generate 0.14x cash from its debt capital.
Can MDRX pay its short-term liabilities?
With current liabilities at US$907m, the company may not be able to easily meet these obligations given the level of current assets of US$856m, with a current ratio of 0.94x.
Does MDRX face the risk of succumbing to its debt-load?
MDRX is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since MDRX is currently 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:
MDRX’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for MDRX’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Allscripts Healthcare Solutions to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MDRX’s future growth? Take a look at our free research report of analyst consensus for MDRX’s outlook.
Valuation: What is MDRX 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 MDRX 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.
