Sunday, January 23, 2011

Data Center Debt to Asset Ratio

I've lamented in the past about the inability of comparing data center industry companies. I certainly don't think the financial analysts are able to properly categorize companies such as Equinix, Digital Realty Trust, Savvis or DuPont Fabros. Comparing them and looking at various ratios is interesting though and still worth the look - in my opinion.

Last summer I attended a finance class and we each picked a stock to analyze. I of course was the only one with a data center industry stock and every time the teacher came over to see how I calculated a particular ratio or figure for that stock he just shook his head - as if it was amazing that the company stayed afloat.

Anyway -- a couple of things I ran across this weekend is what tripped the topic : data centers are asset Heavy companies. This is no particular revelation to readers of this blog, as we all know what it takes to support these expensive, complex facilities.

First- Mr. Mad Money Jim Kramer is at it again for the data center industry -- talking about growth expectations and how he would 'sell' Equinix (EQIX). I don't claim to be a fortune teller of the industry any more than he is, but I (once again) think he is wrong. The last time he addressed the industry in late 2009, DCK posted one of my favorite titles (and article) - There's a Village Somewhere Missing an Idiot.

As if to counter the Jim Kramer prediction, earlier in the week Seeking Alpha had the story about the Analysts Best Picks for 2011 report from Raymond James. Sure enough, there listed was Equinix and Digital Realty Trust (DLR).

Finally, there was a generic Zacks Research article about the highest debt to asset ratio companies - which is where I again don't think that it is a fair thing to complain about for data center companies. Investopedia defines Total Debt to Total Assets as:
"A metric used to measure a company's risk by determining how much of the company's assets have been financed by debt. Calculated by adding short-term and long-term debt and then dividing by the company's total assets."
So, with my limited financial knowledge I figured that would be an interesting one to compare. Not only what this ratio is for these companies, but how they manage it throughout the year. I turned to one of my favorite new sites/tools Kapitall and here is a look at Debt to Assets for the aforementioned companies (hit the play button in the lower right corner):

No revelations or insightful punditry here -- just thought it was interesting. :)

1 comment:

FM Engineering said...

Hey John,nice information.
Data center services are moving toward a new model in which IT enables business transformation instead of propelling business needs. This new flexibility and agility is achieved by adopting data center consolidation and virtualization solutions.