Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Zynga Inc (NASDAQ:ZNGA), with a market cap of US$3.81B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at ZNGA’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ZNGA here. View our latest analysis for Zynga
Can ZNGA service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For ZNGA, the debt-to-equity ratio is zero, meaning that the company 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 ZNGA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ZNGA meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Zynga 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 ZNGA’s most recent US$282.71M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$830.95M, with a current ratio of 2.94x. Generally, for Software companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
ZNGA has no debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, but some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure ZNGA has company-specific issues impacting its capital structure decisions. I suggest you continue to research Zynga to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ZNGA’s future growth? Take a look at our free research report of analyst consensus for ZNGA’s outlook.
- Valuation: What is ZNGA 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 ZNGA 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.