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Mid-caps stocks, like Medpace Holdings, Inc. ( NASDAQ:MEDP ) with a market capitalization of US$2.0b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. MEDP’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into MEDP here .
MEDP’s Debt (And Cash Flows)
MEDP's debt levels have fallen from US$224m to US$111m over the last 12 months , which also accounts for long term debt. With this reduction in debt, MEDP's cash and short-term investments stands at US$30m , ready to be used for running the business. Moreover, MEDP has generated cash from operations of US$167m over the same time period, resulting in an operating cash to total debt ratio of 150%, meaning that MEDP’s debt is appropriately covered by operating cash.
Does MEDP’s liquid assets cover its short-term commitments?
With current liabilities at US$265m, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.69x. The current ratio is calculated by dividing current assets by current liabilities.
Can MEDP service its debt comfortably?
MEDP’s level of debt is low relative to its total equity, at 9.0%. MEDP is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether MEDP is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In MEDP's, case, the ratio of 15.7x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving MEDP ample headroom to grow its debt facilities.
MEDP’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for MEDP, especially when liquidity may also be an issue. Keep in mind I haven't considered other factors such as how MEDP has been performing in the past. I suggest you continue to research Medpace Holdings to get a more holistic view of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for MEDP’s future growth? Take a look at our free research report of analyst consensus for MEDP’s outlook.
- Valuation : What is MEDP 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 MEDP 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 .
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.