Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Ceridian HCM Holding Inc. (NYSE:CDAY), with a market capitalization of US$7.0b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at CDAY’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CDAY here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Does CDAY Produce Much Cash Relative To Its Debt?
CDAY has shrunk its total debt levels in the last twelve months, from US$1.1b to US$716m , which includes long-term debt. With this debt payback, CDAY's cash and short-term investments stands at US$206m to keep the business going. Moreover, CDAY has produced cash from operations of US$24m in the last twelve months, leading to an operating cash to total debt ratio of 3.4%, signalling that CDAY’s current level of operating cash is not high enough to cover debt.
Can CDAY meet its short-term obligations with the cash in hand?
With current liabilities at US$4.7b, it seems that the business has been able to meet these obligations given the level of current assets of US$4.9b, with a current ratio of 1.04x. The current ratio is the number you get when you divide 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.
Can CDAY service its debt comfortably?
With debt reaching 42% of equity, CDAY may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since CDAY is presently loss-making, there’s a question of sustainability of its current operations. 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 CDAY’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. Since there is also no concerns around CDAY's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CDAY's financial health. Other important fundamentals need to be considered alongside. You should continue to research Ceridian HCM Holding to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CDAY’s future growth? Take a look at our free research report of analyst consensus for CDAY’s outlook.
- Valuation: What is CDAY 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 CDAY 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.
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.