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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Strategic Education, Inc. (NASDAQ:STRA), with a market cap of US$3.8b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at STRA’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into STRA here.
Does STRA Produce Much Cash Relative To Its Debt?
STRA has increased its debt level by about US$117m over the last 12 months including long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$389m to keep the business going. Moreover, STRA has generated cash from operations of US$88m over the same time period, resulting in an operating cash to total debt ratio of 76%, meaning that STRA’s current level of operating cash is high enough to cover debt.
Can STRA pay its short-term liabilities?
At the current liabilities level of US$154m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.97x. The current ratio is calculated by dividing current assets by current liabilities. For Consumer Services companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Can STRA service its debt comfortably?
STRA’s level of debt is low relative to its total equity, at 8.2%. This range is considered safe as STRA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for STRA, and the company also has the ability and headroom to increase debt if needed going forward.
STRA’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for STRA's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Strategic Education to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for STRA’s future growth? Take a look at our free research report of analyst consensus for STRA’s outlook.
- Valuation: What is STRA 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 STRA 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 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.