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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as ExlService Holdings, Inc. (NASDAQ:EXLS), with a market capitalization of US$2.1b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. EXLS’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into EXLS here.
EXLS’s Debt (And Cash Flows)
EXLS's debt levels surged from US$61m to US$285m over the last 12 months , which accounts for long term debt. With this increase in debt, EXLS currently has US$280m remaining in cash and short-term investments to keep the business going. On top of this, EXLS has produced US$92m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 32%, meaning that EXLS’s current level of operating cash is high enough to cover debt.
Can EXLS pay its short-term liabilities?
Looking at EXLS’s US$155m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$500m, with a current ratio of 3.22x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Can EXLS service its debt comfortably?
With debt reaching 46% of equity, EXLS may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In EXLS's case, the ratio of 13.29x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
EXLS’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. 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 EXLS has been performing in the past. I suggest you continue to research ExlService Holdings to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EXLS’s future growth? Take a look at our free research report of analyst consensus for EXLS’s outlook.
- Valuation: What is EXLS 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 EXLS 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.