Stocks with market capitalization between $2B and $10B, such as Match Group Inc (NASDAQ:MTCH) with a size of USD $7.50B, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. I will take you through a few basic checks to assess the financial health of companies with no debt. Check out our latest analysis for Match Group
Is MTCH’s level of debt at an acceptable level?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. For MTCH, 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. While debt-to-equity ratio has several factors at play, an easier way to check whether MTCH’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. MTCH’s interest on debt is sufficiently covered by earnings as it sits at around 4.13x. Lenders may be less hesitant to lend out more funding as MTCH’s high interest coverage is seen as responsible and safe practice.
Can MTCH pay its short-term liabilities?
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. To assess this, I compare MTCH’s cash and other liquid assets against its upcoming debt. Our analysis shows that MTCH is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Next Steps:
Are you a shareholder? MTCH’s high debt levels are not met with high cash flow coverage. This means investors should ask themselves if they think MTCH can improve in terms of debt management and operational efficiency. Since MTCH’s financial position may differ over time, I recommend researching market expectations for MTCH’s future growth on our free analysis platform.