Yahoo Finance Is Software Aktiengesellschaft’s (ETR:SOW) Liquidity Good Enough?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Software Aktiengesellschaft (ETR:SOW) with a market-capitalization of €2.7b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at SOW’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SOW here.
View our latest analysis for Software
How much cash does SOW generate through its operations?
SOW has sustained its debt level by about €315m over the last 12 months made up of current and long term debt. At this constant level of debt, SOW currently has €394m remaining in cash and short-term investments for investing into the business. Additionally, SOW has generated €176m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 56%, signalling that SOW’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 SOW’s case, it is able to generate 0.56x cash from its debt capital.
Can SOW meet its short-term obligations with the cash in hand?
With current liabilities at €455m, the company has been able to meet these commitments with a current assets level of €619m, leading to a 1.36x current account ratio. For Software 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.
Is SOW’s debt level acceptable?
With a debt-to-equity ratio of 28%, SOW’s debt level may be seen as prudent. SOW is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
SOW’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure SOW has company-specific issues impacting its capital structure decisions. You should continue to research Software to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SOW’s future growth? Take a look at our free research report of analyst consensus for SOW’s outlook.
Valuation: What is SOW 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 SOW 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
