Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) with a market-capitalization of $2.60B, rarely draw their attention and few analysts cover them. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I recommend you look at the following hurdles to assess MDRX’s financial health. Check out our latest analysis for Allscripts Healthcare Solutions
Is MDRX’s level of debt at an acceptable level?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. MDRX’s debt-to-equity ratio stands at 90.39%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, availability of cash may dry up, making it hard to operate. We can test if MDRX’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings (EBIT) should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. MDRX’s profits only covers interest 0.84 times, which is deemed as inadequate. Lenders may be more reluctant to lend out more funding as MDRX’s low interest coverage already puts the company at higher risk of default.
Does MDRX’s liquid assets cover its short-term commitments?
Debt to equity ratio is an important aspect of financial strength. But if the company has a substantial amount of cash on its balance sheet, that should allay some fear of a debt overhang and increase the chance of meeting upcoming liabilities. To assess this, I compare MDRX’s cash and other liquid assets against its upcoming debt. Our analysis shows that MDRX is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Are you a shareholder? With a high level of debt on its balance sheet, MDRX could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case so investors should ask themselves if they believe MDRX can sustainably increase its operational efficiency going forward. Since MDRX’s capital structure may change over time, You should continue researching market expectations for MDRX’s future growth on our free analysis platform.
Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. MDRX’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.