Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Cornerstone OnDemand Inc (NASDAQ:CSOD) with a market-capitalization of US$2.42B, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at CSOD’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 CSOD here. See our latest analysis for Cornerstone OnDemand
How does CSOD’s operating cash flow stack up against its debt?
Over the past year, CSOD has ramped up its debt from US$238.44M to US$533.19M , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$563.13M for investing into the business. On top of this, CSOD has generated cash from operations of US$67.51M over the same time period, resulting in an operating cash to total debt ratio of 12.66%, signalling that CSOD’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In CSOD’s case, it is able to generate 0.13x cash from its debt capital.
Can CSOD pay its short-term liabilities?
Looking at CSOD’s most recent US$644.24M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.21x. Usually, for Internet companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does CSOD face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, CSOD is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since CSOD is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
CSOD’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CSOD’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cornerstone OnDemand to get a better picture of the stock by looking at: