Yahoo Finance What Investors Should Know About Envestnet Inc’s (NYSE:ENV) Financial Strength
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Envestnet Inc (NYSE:ENV), with a market cap of US$2.69b, often get neglected by retail investors. 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 ENV’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ENV here. View out our latest analysis for Envestnet
Does ENV produce enough cash relative to debt?
Over the past year, ENV has reduced its debt from US$290.91m to US$240.16m – this includes both the current and long-term debt. With this debt repayment, ENV currently has US$60.12m remaining in cash and short-term investments for investing into the business. Additionally, ENV has generated cash from operations of US$108.61m during the same period of time, leading to an operating cash to total debt ratio of 45.22%, meaning that ENV’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 ENV’s case, it is able to generate 0.45x cash from its debt capital.
Can ENV pay its short-term liabilities?
At the current liabilities level of US$140.36m liabilities, it appears that the company is not able to meet these obligations given the level of current assets of US$131.11m, with a current ratio of 0.93x below the prudent level of 3x.
Is ENV’s debt level acceptable?
With a debt-to-equity ratio of 92.49%, ENV can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether ENV 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 ENV’s, case, the ratio of 1.49x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
ENV’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for ENV’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Envestnet to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ENV’s future growth? Take a look at our free research report of analyst consensus for ENV’s outlook.
Valuation: What is ENV 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 ENV 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.
