Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
RingCentral, Inc. (NYSE:RNG), a large-cap worth US$9.7b, comes to mind for investors seeking a strong and reliable stock investment. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the key to their continued success lies in its financial health. This article will examine RingCentral’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. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into RNG here.
RNG’s Debt (And Cash Flows)
Over the past year, RNG has ramped up its debt from US$357m to US$407m , which accounts for long term debt. With this increase in debt, RNG currently has US$549m remaining in cash and short-term investments to keep the business going. Moreover, RNG has produced US$80m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 20%, signalling that RNG’s operating cash is less than its debt.
Can RNG pay its short-term liabilities?
Looking at RNG’s US$229m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$704m, leading to a 3.08x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Can RNG service its debt comfortably?
With total debt exceeding equities, RingCentral is considered a highly levered company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. Though, since RNG is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, RNG has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for RNG's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research RingCentral to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RNG’s future growth? Take a look at our free research report of analyst consensus for RNG’s outlook.
- Valuation: What is RNG 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 RNG 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 firstname.lastname@example.org. 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.