Is Progress Software Corporation’s (NASDAQ:PRGS) Balance Sheet Strong Enough To Weather A Storm?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Progress Software Corporation (NASDAQ:PRGS), with a market cap of US$2.26B, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine PRGS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PRGS here. View our latest analysis for Progress Software
Does PRGS generate an acceptable amount of cash through operations?
PRGS’s debt levels have fallen from US$135.00M to US$121.91M over the last 12 months , which is made up of current and long term debt. With this reduction in debt, PRGS’s cash and short-term investments stands at US$183.61M , ready to deploy into the business. On top of this, PRGS has produced US$105.69M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 86.69%, meaning that PRGS’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PRGS’s case, it is able to generate 0.87x cash from its debt capital.
Does PRGS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$208.02M liabilities, the company has been able to meet these obligations given the level of current assets of US$263.41M, with a current ratio of 1.27x. Usually, for Software companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is PRGS’s debt level acceptable?
With debt at 32.42% of equity, PRGS may be thought of as appropriately levered. PRGS is not taking on too much debt commitment, which may be constraining for future growth. We can test if PRGS’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For PRGS, the ratio of 26.36x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
PRGS’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how PRGS has been performing in the past. I suggest you continue to research Progress Software to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for PRGS’s future growth? Take a look at our free research report of analyst consensus for PRGS’s outlook.
2. Valuation: What is PRGS 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 PRGS is currently mispriced by the market.
3. 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.
