Is Zoom Video Communications, Inc. (NASDAQ:ZM) As Strong As Its Balance Sheet Indicates?
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Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider Zoom Video Communications, Inc. (NASDAQ:ZM). With a market valuation of US$26b, ZM is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for ZM, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
See our latest analysis for Zoom Video Communications
Does ZM face the risk of succumbing to its debt-load?
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. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Zoom Video Communications has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with ZM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ZM pay its short-term liabilities?
Since Zoom Video Communications 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. With current liabilities at US$194m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.46x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Next Steps:
ZM has zero debt as well as ample cash to cover its near-term liabilities. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I'm sure ZM has company-specific issues impacting its capital structure decisions. You should continue to research Zoom Video Communications to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ZM’s future growth? Take a look at our free research report of analyst consensus for ZM’s outlook.
Valuation: What is ZM 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 ZM 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 editorial-team@simplywallst.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.
