Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Appian Corporation (NASDAQ:APPN), with a market capitalization of US$2.2b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine APPN’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 APPN here.
Is APPN’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For APPN, the debt-to-equity ratio is zero, meaning that the company 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 APPN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does APPN’s liquid assets cover its short-term commitments?
Since Appian 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at APPN’s US$128m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$210m, with a current ratio of 1.63x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Software companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
APPN has zero-debt as well as ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and its investors, though, some level of debt may also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for APPN's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Appian to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for APPN’s future growth? Take a look at our free research report of analyst consensus for APPN’s outlook.
- Historical Performance: What has APPN's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.