With a market capitalization of US$9.7b, F5 Networks, Inc. (NASDAQ:FFIV) 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. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for FFIV to determine is solvency and liquidity and whether the stock is a sound investment.
Is FFIV’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. For F5 Networks, 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 FFIV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can FFIV pay its short-term liabilities?
Given zero long-term debt on its balance sheet, F5 Networks has no solvency issues, which is 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 FFIV’s US$1.0b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.55x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Communications companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
FFIV has zero debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and shareholders. Keep in mind I haven’t considered other factors such as how FFIV has performed in the past. I recommend you continue to research F5 Networks to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FFIV’s future growth? Take a look at our free research report of analyst consensus for FFIV’s outlook.
- Valuation: What is FFIV 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 FFIV 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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