Investors pursuing a solid, dependable stock investment can often be led to salesforcecom inc (NYSE:CRM), a large-cap worth US$98.95b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to extending previous success is in the health of the company’s financials. This article will examine salesforce.com’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CRM here. See our latest analysis for salesforce.com
How does CRM’s operating cash flow stack up against its debt?
CRM has shrunken its total debt levels in the last twelve months, from US$2.79b to US$2.23b , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at US$4.52b for investing into the business. On top of this, CRM has produced US$2.74b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 122.61%, signalling that CRM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CRM’s case, it is able to generate 1.23x cash from its debt capital.
Can CRM meet its short-term obligations with the cash in hand?
Looking at CRM’s most recent US$10.13b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.92x, which is below the prudent industry ratio of 3x.
Is CRM’s debt level acceptable?
With a debt-to-equity ratio of 36.06%, CRM’s debt level may be seen as prudent. This range is considered safe as CRM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if CRM’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In CRM’s case, the ratio of 8.21x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like CRM are considered a risk-averse investment.
CRM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. This is only a rough assessment of financial health, and I’m sure CRM has company-specific issues impacting its capital structure decisions. I recommend you continue to research salesforce.com to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CRM’s future growth? Take a look at our free research report of analyst consensus for CRM’s outlook.
- Valuation: What is CRM 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 CRM 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.