Take-Two Interactive Software, Inc. (NASDAQ:TTWO): Financial Strength Analysis

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With a market capitalization of US$10b, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there’s plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for TTWO, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

View our latest analysis for Take-Two Interactive Software

Is TTWO’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. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Take-Two Interactive Software has no debt. 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 TTWO, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NASDAQGS:TTWO Historical Debt February 7th 19
NASDAQGS:TTWO Historical Debt February 7th 19

Can TTWO pay its short-term liabilities?

Since Take-Two Interactive Software 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at TTWO’s US$1.5b in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$2.2b, leading to a 1.47x current account ratio. Generally, for Entertainment companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

Next Steps:

TTWO has no debt as well as ample cash to cover its short-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. Keep in mind I haven’t considered other factors such as how TTWO has performed in the past. I suggest you continue to research Take-Two Interactive Software to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TTWO’s future growth? Take a look at our free research report of analyst consensus for TTWO’s outlook.
  2. Valuation: What is TTWO 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 TTWO is currently mispriced by the market.
  3. 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.