The size of Atos SE (ENXTPA:ATO), a €12.17B large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to their continued success lies in its financial health. Today we will look at Atos’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 ATO here. See our latest analysis for Atos
How much cash does ATO generate through its operations?
ATO’s debt levels surged from €1.69B to €1.95B over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €2.26B for investing into the business. On top of this, ATO has generated €1.24B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 63.35%, signalling that ATO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ATO’s case, it is able to generate 0.63x cash from its debt capital.
Can ATO pay its short-term liabilities?
With current liabilities at €5.43B, it seems that the business has been able to meet these obligations given the level of current assets of €6.44B, with a current ratio of 1.19x. Generally, for IT companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is ATO’s debt level acceptable?
ATO’s level of debt is appropriate relative to its total equity, at 37.37%. ATO is not taking on too much debt commitment, which may be constraining for future growth. We can test if ATO’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In ATO’s case, the ratio of 43.12x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes ATO and other large-cap investments thought to be safe.
ATO’s high cash coverage and appropriate 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, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for ATO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Atos to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ATO’s future growth? Take a look at our free research report of analyst consensus for ATO’s outlook.
- Valuation: What is ATO 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 ATO 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.