Investors are always looking for growth in small-cap stocks like Perficient, Inc. ( NASDAQ:PRFT ), with a market cap of US$756m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the IT industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into PRFT here .
Does PRFT produce enough cash relative to debt?
Over the past year, PRFT has ramped up its debt from US$65m to US$119m , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$45m for investing into the business. Additionally, PRFT has produced US$68m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 57%, signalling that PRFT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PRFT’s case, it is able to generate 0.57x cash from its debt capital.
Can PRFT pay its short-term liabilities?
At the current liabilities level of US$55m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.93x. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can PRFT service its debt comfortably?
PRFT’s level of debt is appropriate relative to its total equity, at 34%. This range is considered safe as PRFT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether PRFT 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 PRFT’s, case, the ratio of 17.38x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as PRFT’s high interest coverage is seen as responsible and safe practice.
PRFT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, 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 PRFT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Perficient to get a more holistic view of the stock by looking at:
- Future Outlook : What are well-informed industry analysts predicting for PRFT’s future growth? Take a look at our free research report of analyst consensus for PRFT’s outlook.
- Valuation : What is PRFT 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 PRFT 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 .
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com .