Yahoo Finance What You Must Know About Softcat plc's (LON:SCT) Financial Health
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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Softcat plc (LON:SCT), with a market capitalization of UK£1.6b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine SCT’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SCT here.
View our latest analysis for Softcat
Can SCT service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Softcat, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with SCT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can SCT pay its short-term liabilities?
Since Softcat doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of UK£254m, the company has been able to meet these obligations given the level of current assets of UK£329m, with a current ratio of 1.29x. The current ratio is calculated by dividing current assets by current liabilities. For IT companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
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SCT has zero-debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, however, some degree of debt could also ramp up earnings growth and operational efficiency. I admit this is a fairly basic analysis for SCT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Softcat to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SCT’s future growth? Take a look at our free research report of analyst consensus for SCT’s outlook.
Valuation: What is SCT 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 SCT 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.
