Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Groupon Inc (NASDAQ:GRPN) with a market-capitalization of USD $2.65B, rarely draw their attention and few analysts cover them. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I recommend you look at the following hurdles to assess GRPN’s financial health. See our latest analysis for GRPN

Is GRPN’s level of debt at an acceptable level?

Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of GRPN, the debt-to-equity ratio is over 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, availability of cash may dry up, making it hard to operate.

Does GRPN’s liquid assets cover its short-term commitments?

A different measure of financial health is measured by its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. In order to measure liquidity, we must compare GRPN’s current assets with its upcoming liabilities. Our analysis shows that GRPN 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? GRPN’s high cash coverage means that, although its debt levels are high, investors shouldn’t panic since the company is able to utilise its borrowings efficiently in order to generate cash flow. Since GRPN’s capital structure may differ over time, I encourage researching market expectations for GRPN’s future growth on our free analysis platform.

Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. After all, debt financing is an important source of funding for companies seeking to grow through new projects and investments. GRPN’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.