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Is Medidata Solutions, Inc. (NASDAQ:MDSO) As Strong As Its Balance Sheet Indicates?

Simply Wall St

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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Medidata Solutions, Inc. (NASDAQ:MDSO) with a market-capitalization of US$5.6b, rarely draw their attention. 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. Today we will look at MDSO’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Medidata Solutions's financial health, so you should conduct further analysis into MDSO here.

See our latest analysis for Medidata Solutions

MDSO’s Debt (And Cash Flows)

MDSO's debt levels have fallen from US$380m to US$203m over the last 12 months , which includes long-term debt. With this debt payback, MDSO currently has US$206m remaining in cash and short-term investments to keep the business going. On top of this, MDSO has produced cash from operations of US$90m during the same period of time, resulting in an operating cash to total debt ratio of 44%, signalling that MDSO’s current level of operating cash is high enough to cover debt.

Can MDSO pay its short-term liabilities?

At the current liabilities level of US$173m, the company has been able to meet these obligations given the level of current assets of US$444m, with a current ratio of 2.57x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Healthcare Services companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:MDSO Historical Debt, June 10th 2019

Is MDSO’s debt level acceptable?

With a debt-to-equity ratio of 14%, MDSO's debt level may be seen as prudent. MDSO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if MDSO’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For MDSO, the ratio of 8.41x suggests that interest is appropriately 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:

MDSO’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure MDSO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Medidata Solutions to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MDSO’s future growth? Take a look at our free research report of analyst consensus for MDSO’s outlook.
  2. Valuation: What is MDSO 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 MDSO 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.