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There are a number of reasons that attract investors towards large-cap companies such as MongoDB, Inc. (NASDAQ:MDB), with a market cap of US$9.6b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to extending previous success is in the health of the company’s financials. Let’s take a look at MongoDB’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into MDB here.
MDB’s Debt (And Cash Flows)
Over the past year, MDB has borrowed debt capital of around US$298m accounting for long term debt. With this increase in debt, MDB's cash and short-term investments stands at US$476m to keep the business going. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of MDB’s operating efficiency ratios such as ROA here.
Does MDB’s liquid assets cover its short-term commitments?
Looking at MDB’s US$178m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$567m, with a current ratio of 3.18x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Does MDB face the risk of succumbing to its debt-load?
Since equity is smaller than total debt levels, MongoDB is considered to have high leverage. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. However, since MDB is presently 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.
MDB’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure MDB has company-specific issues impacting its capital structure decisions. I suggest you continue to research MongoDB to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDB’s future growth? Take a look at our free research report of analyst consensus for MDB’s outlook.
- Valuation: What is MDB 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 MDB is currently mispriced by the market.
- 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 email@example.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.