Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Tyler Technologies, Inc. (NYSE:TYL) with a market-capitalization of US$7.0b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at TYL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TYL here.
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Is TYL’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. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For TYL, 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 TYL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can TYL meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Tyler Technologies has no solvency issues, which is 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 TYL’s US$397m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.52x. Usually, for Software companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
TYL has zero-debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt could also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for TYL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tyler Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TYL’s future growth? Take a look at our free research report of analyst consensus for TYL’s outlook.
- Valuation: What is TYL 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 TYL 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 past 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. For errors that warrant correction please contact the editor at email@example.com.