U.S. Markets closed

FTI Consulting, Inc. (NYSE:FCN): Financial Strength Analysis

Simply Wall St

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like FTI Consulting, Inc. (NYSE:FCN), with a market cap of US$3.1b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. FCN’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. Don’t forget that this is a general and concentrated examination of FTI Consulting's financial health, so you should conduct further analysis into FCN here.

Check out our latest analysis for FTI Consulting

FCN’s Debt (And Cash Flows)

FCN has shrunk its total debt levels in the last twelve months, from US$396m to US$266m – this includes long-term debt. With this debt repayment, FCN's cash and short-term investments stands at US$312m to keep the business going. Moreover, FCN has produced US$231m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 87%, signalling that FCN’s current level of operating cash is high enough to cover debt.

Can FCN pay its short-term liabilities?

Looking at FCN’s US$483m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$965m, with a current ratio of 2x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Professional Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NYSE:FCN Historical Debt, April 26th 2019

Can FCN service its debt comfortably?

With debt at 20% of equity, FCN may be thought of as appropriately levered. FCN is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether FCN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In FCN's, case, the ratio of 10.44x 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.

Next Steps:

FCN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for FCN's financial health. Other important fundamentals need to be considered alongside. You should continue to research FTI Consulting to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FCN’s future growth? Take a look at our free research report of analyst consensus for FCN’s outlook.
  2. Valuation: What is FCN 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 FCN is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.