Is Okta Inc’s (NASDAQ:OKTA) Liquidity Good Enough?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Okta Inc (NASDAQ:OKTA), with a market cap of US$4.39B, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. OKTA’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into OKTA here. View our latest analysis for Okta
Does OKTA face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Okta has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with OKTA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does OKTA’s liquid assets cover its short-term commitments?
Since Okta doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$190.76M, it appears that the company has been able to meet these commitments with a current assets level of US$315.42M, leading to a 1.65x current account ratio. Usually, for Internet companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Next Steps:
OKTA has zero-debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some level of debt may also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for OKTA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Okta to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for OKTA’s future growth? Take a look at our free research report of analyst consensus for OKTA’s outlook.
Valuation: What is OKTA 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 OKTA 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.
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.
