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Mid-caps stocks, like Arco Platform Limited (NASDAQ:ARCE) with a market capitalization of US$2.1b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. ARCE’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ARCE here.
Check out our latest analysis for Arco Platform
ARCE’s Debt (And Cash Flows)
In the previous 12 months, ARCE’s rose by about R$22m – which includes long-term debt. With this ramp up in debt, ARCE currently has R$837m remaining in cash and short-term investments , ready to be used for running the business. Moreover, ARCE has produced cash from operations of R$104m in the last twelve months, leading to an operating cash to total debt ratio of 482%, signalling that ARCE’s debt is appropriately covered by operating cash.
Does ARCE’s liquid assets cover its short-term commitments?
At the current liabilities level of R$86m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 11.89x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Can ARCE service its debt comfortably?
With debt at 2.0% of equity, ARCE may be thought of as having low leverage. ARCE is not taking on too much debt commitment, which may be constraining for future growth. ARCE’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
ARCE has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ARCE has company-specific issues impacting its capital structure decisions. You should continue to research Arco Platform to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ARCE’s future growth? Take a look at our free research report of analyst consensus for ARCE’s outlook.
- Valuation: What is ARCE 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 ARCE 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.