Yahoo Finance Are Box Inc’s (NYSE:BOX) Interest Costs Too High?
Mid-caps stocks, like Box Inc (NYSE:BOX) with a market capitalization of US$3.95b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. This article will examine BOX’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BOX here. See our latest analysis for Box
How does BOX’s operating cash flow stack up against its debt?
Over the past year, BOX has ramped up its debt from US$75.45m to US$85.82m , which is made up of current and long term debt. With this growth in debt, BOX’s cash and short-term investments stands at US$208.08m for investing into the business. Additionally, BOX has produced US$61.82m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 72.03%, indicating that BOX’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In BOX’s case, it is able to generate 0.72x cash from its debt capital.
Can BOX pay its short-term liabilities?
At the current liabilities level of US$393.97m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$399.19m, with a current ratio of 1.01x. Usually, for Internet companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BOX face the risk of succumbing to its debt-load?
BOX is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since BOX is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
BOX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around BOX’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how BOX has been performing in the past. I suggest you continue to research Box to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BOX’s future growth? Take a look at our free research report of analyst consensus for BOX’s outlook.
Valuation: What is BOX 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 BOX 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 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.
