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Model N Inc (NYSE:MODN): Time For A Financial Health Check

Sadie Atkinson

Model N Inc (NYSE:MODN) is a small-cap stock with a market capitalization of US$502.69M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Software companies, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into MODN here.

How does MODN’s operating cash flow stack up against its debt?

MODN has increased its debt level by about US$57.21M over the last 12 months – this includes both the current and long-term debt. With this ramp up in debt, MODN’s cash and short-term investments stands at US$57.56M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of MODN’s operating efficiency ratios such as ROA here.

Can MODN meet its short-term obligations with the cash in hand?

Looking at MODN’s most recent US$76.92M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$87.09M, leading to a 1.13x current account ratio. For Software companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NYSE:MODN Historical Debt Apr 27th 18

Can MODN service its debt comfortably?

MODN is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since MODN 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.

Next Steps:

MODN’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure MODN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Model N to get a better picture of the stock by looking at:

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


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.