Yahoo Finance All You Need To Know About Korn Ferry's (NYSE:KFY) Financial Health
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Korn Ferry (NYSE:KFY) with a market-capitalization of US$2.6b, rarely draw their attention. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at KFY’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 KFY here.
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Does KFY Produce Much Cash Relative To Its Debt?
KFY has shrunk its total debt levels in the last twelve months, from US$241m to US$223m – this includes long-term debt. With this reduction in debt, KFY's cash and short-term investments stands at US$491m to keep the business going. Moreover, KFY has generated US$260m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 117%, indicating that KFY’s operating cash is sufficient to cover its debt.
Can KFY pay its short-term liabilities?
Looking at KFY’s US$486m in current liabilities, the company has been able to meet these commitments with a current assets level of US$1.0b, leading to a 2.09x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Professional Services companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does KFY face the risk of succumbing to its debt-load?
KFY’s level of debt is appropriate relative to its total equity, at 18%. KFY is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether KFY 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 KFY's, case, the ratio of 23.85x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving KFY ample headroom to grow its debt facilities.
Next Steps:
KFY’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure KFY has company-specific issues impacting its capital structure decisions. You should continue to research Korn Ferry to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KFY’s future growth? Take a look at our free research report of analyst consensus for KFY’s outlook.
Valuation: What is KFY 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 KFY 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.
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