Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Smartsheet Inc. (NYSE:SMAR), with a market cap of US$4.2b, often get neglected by retail investors. 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 SMAR’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SMAR here.
Does SMAR Produce Much Cash Relative To Its Debt?
SMAR has built up its total debt levels in the last twelve months, from US$5.0m to US$6.7m , which is mainly comprised of near term debt. With this rise in debt, SMAR’s cash and short-term investments stands at US$212m to keep the business going. Moving on, operating cash flow was negative 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 SMAR’s operating efficiency ratios such as ROA here.
Does SMAR’s liquid assets cover its short-term commitments?
Looking at SMAR’s US$116m in current liabilities, the company has been able to meet these commitments with a current assets level of US$242m, leading to a 2.09x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Software companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is SMAR’s debt level acceptable?
SMAR’s level of debt is low relative to its total equity, at 3.9%. This range is considered safe as SMAR is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with SMAR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although SMAR’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for SMAR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Smartsheet to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SMAR’s future growth? Take a look at our free research report of analyst consensus for SMAR’s outlook.
- Valuation: What is SMAR 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 SMAR 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.
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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.