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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. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to their continued success lies in its financial health. I will provide an overview of MongoDB’s financial liquidity and leverage to give you an idea of MongoDB’s position to take advantage of potential acquisitions or comfortably endure future downturns. 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.
Does MDB Produce Much Cash Relative To Its Debt?
MDB has increased its debt level by about US$298m over the last 12 months including long-term debt. With this increase in debt, MDB's cash and short-term investments stands at US$476m , ready to be used for running the business. 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 assess some of MDB’s operating efficiency ratios such as ROA here.
Does MDB’s liquid assets cover its short-term commitments?
With current liabilities at US$178m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.18x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Can MDB service its debt comfortably?
With total debt exceeding equities, MongoDB is considered a highly levered company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. But since MDB is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
MDB’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. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MDB's financial health. Other important fundamentals need to be considered alongside. You should continue to research MongoDB to get a better picture 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 firstname.lastname@example.org. 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.