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Is Model N Inc (NYSE:MODN) A Financially Sound Company?

Alvin Rowe

Investors are always looking for growth in small-cap stocks like Model N Inc (NYSE:MODN), with a market cap of $461.95M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the software industry, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into MODN here.

Does MODN generate an acceptable amount of cash through operations?

Over the past year, MODN has borrowed debt capital of around $57.2M – this includes both the current and long-term debt. With this growth in debt, MODN’s cash and short-term investments stands at $57.6M , ready to deploy into the business. However, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at 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 $76.9M liabilities, it appears that the company has been able to meet these commitments with a current assets level of $87.1M, leading to a 1.13x current account ratio. For software companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.

NYSE:MODN Historical Debt Jan 2nd 18

Is MODN’s level of debt at an acceptable level?

With total debt exceeding equities, MODN is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since MODN is currently loss-making, 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:

Are you a shareholder? At its current level of cash flow coverage, MODN has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that MODN’s financial situation may change. I suggest keeping on top of market expectations for MODN’s future growth on our free analysis platform.

Are you a potential investor? With a high level of debt on its balance sheet, MODN could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for MODN to increase its operational efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. You should continue your analysis by taking a look at MODN’s past performance analysis on our free platform to figure out MODN’s financial health position.


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.