Yahoo Finance Has AVEVA Group plc (LON:AVV) Got Enough Cash?
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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as AVEVA Group plc (LON:AVV), with a market capitalization of UK£5.3b, rarely draw their attention from the investing community. 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 AVV’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AVV here.
View our latest analysis for AVEVA Group
Does AVV Produce Much Cash Relative To Its Debt?
In the previous 12 months, AVV's rose by about UK£12m , which is mainly comprised of near term debt. With this ramp up in debt, the current cash and short-term investment levels stands at UK£93m , ready to be used for running the business. On top of this, AVV has generated cash from operations of UK£80m in the last twelve months, resulting in an operating cash to total debt ratio of 673%, meaning that AVV’s debt is appropriately covered by operating cash.
Can AVV meet its short-term obligations with the cash in hand?
With current liabilities at UK£301m, it appears that the company has been able to meet these obligations given the level of current assets of UK£380m, with a current ratio of 1.26x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Software 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 AVV’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For AVEVA Group, investors should not worry about its debt levels because the company has very, very little on its balance sheet! It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with AVV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
AVV has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how AVV has been performing in the past. I recommend you continue to research AVEVA Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AVV’s future growth? Take a look at our free research report of analyst consensus for AVV’s outlook.
Valuation: What is AVV 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 AVV 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
