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Investors are always looking for growth in small-cap stocks like Five9, Inc. (NASDAQ:FIVN), with a market cap of US$3.2b. However, an important fact which most ignore is: how financially healthy is the business? Given that FIVN is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into FIVN here.
Does FIVN Produce Much Cash Relative To Its Debt?
FIVN's debt levels surged from US$47m to US$217m over the last 12 months , which accounts for long term debt. With this rise in debt, FIVN currently has US$299m remaining in cash and short-term investments , ready to be used for running the business. Additionally, FIVN has produced US$42m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 19%, meaning that FIVN’s debt is not covered by operating cash.
Does FIVN’s liquid assets cover its short-term commitments?
Looking at FIVN’s US$56m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$345m, leading to a 6.12x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Can FIVN service its debt comfortably?
FIVN is a highly-leveraged company with debt exceeding equity by over 100%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since FIVN is currently 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.
Although FIVN’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. Keep in mind I haven't considered other factors such as how FIVN has been performing in the past. I recommend you continue to research Five9 to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FIVN’s future growth? Take a look at our free research report of analyst consensus for FIVN’s outlook.
- Valuation: What is FIVN 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 FIVN 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.