Stocks with market capitalization between $2B and $10B, such as Five9, Inc. (NASDAQ:FIVN) with a size of US$2.9b, 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. Let’s take a look at FIVN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Five9’s financial health, so you should conduct further analysis into FIVN here.
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FIVN’s Debt (And Cash Flows)
Over the past year, FIVN has ramped up its debt from US$47m to US$217m – this includes long-term debt. With this increase in debt, FIVN's cash and short-term investments stands at US$299m , ready to be used for running the business. Moreover, FIVN has generated cash from operations of US$42m in the last twelve months, leading to an operating cash to total debt ratio of 19%, meaning that FIVN’s debt is not covered by operating cash.
Can FIVN pay its short-term liabilities?
At the current liabilities level of US$56m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.12x. 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 not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since FIVN 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.
FIVN’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. This is only a rough assessment of financial health, and I'm sure FIVN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Five9 to get a better picture of the mid-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 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.