Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as HubSpot Inc (NYSE:HUBS) with a market-capitalization of $3.40B, rarely draw their attention and few analysts cover them. 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 HubSpot

Does HUBS face the risk of succumbing to its debt-load?

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. In the case of HUBS, the debt-to-equity ratio is over 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.

Can HUBS meet its short-term obligations with the cash in hand?

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. In order to measure liquidity, we must compare HUBS’s current assets with its upcoming liabilities. Our analysis shows that HUBS 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? With a high level of debt on its balance sheet, HUBS could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case so investors should ask themselves if they believe HUBS can sustainably increase its operational efficiency going forward. Given that HUBS’s capital structure could change over time, You should continue assessing market expectations for HUBS’s future growth on our free analysis platform.

Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. HUBS’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

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.