Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Verint Systems Inc. (NASDAQ:VRNT) with a market-capitalization of US$3.8b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine VRNT’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. Don’t forget that this is a general and concentrated examination of Verint Systems’s financial health, so you should conduct further analysis into VRNT here.
See our latest analysis for Verint Systems
VRNT’s Debt (And Cash Flows)
VRNT’s debt level has been constant at around US$782m over the previous year – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$402m , ready to be used for running the business. Additionally, VRNT has generated cash from operations of US$215m during the same period of time, resulting in an operating cash to total debt ratio of 28%, meaning that VRNT’s debt is appropriately covered by operating cash.
Can VRNT pay its short-term liabilities?
With current liabilities at US$662m, the company has been able to meet these obligations given the level of current assets of US$1.0b, with a current ratio of 1.52x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Software companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does VRNT face the risk of succumbing to its debt-load?
With debt reaching 62% of equity, VRNT may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if VRNT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For VRNT, the ratio of 3.51x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as VRNT’s high interest coverage is seen as responsible and safe practice.
Next Steps:
VRNT’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. Since there is also no concerns around VRNT’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure VRNT has company-specific issues impacting its capital structure decisions. I recommend you continue to research Verint Systems to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VRNT’s future growth? Take a look at our free research report of analyst consensus for VRNT’s outlook.
- Valuation: What is VRNT 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 VRNT 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.