Mid-caps stocks, like Cornerstone OnDemand Inc (NASDAQ:CSOD) with a market capitalization of USD $2.16B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups, primarily due to seasoned executives running a lean corporate structure. I’ve put together a small checklist, which I believe provides a ballpark estimate of their financial health status. See our latest analysis for CSOD
Can CSOD service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For CSOD, the debt-to-equity ratio stands at above 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.
Does CSOD’s liquid assets cover its short-term commitments?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. To assess this, I compare CSOD’s cash and other liquid assets against its upcoming debt. Our analysis shows that CSOD is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Next Steps:
Are you a shareholder? With a high level of debt on its balance sheet, CSOD could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case so investors should ask themselves if they believe CSOD can sustainably increase its operational efficiency going forward. Since CSOD’s financial situation may change over time, I suggest researching market expectations for CSOD’s future growth on our free analysis platform.
Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. CSOD’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.