Arista Networks, Inc. (NYSE:ANET), a large-cap worth US$22b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available 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. Today I will analyse the latest financial data for ANET to determine is solvency and liquidity and whether the stock is a sound investment.
ANET’s Debt (And Cash Flows)
ANET has shrunk its total debt levels in the last twelve months, from US$38m to US$35m . With this debt payback, ANET currently has US$2.0b remaining in cash and short-term investments to keep the business going. On top of this, ANET has produced cash from operations of US$503m over the same time period, resulting in an operating cash to total debt ratio of 1420%, indicating that ANET’s debt is appropriately covered by operating cash.
Can ANET meet its short-term obligations with the cash in hand?
Looking at ANET’s US$607m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$2.7b, leading to a 4.48x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can ANET service its debt comfortably?
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. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With a debt-to-equity ratio of 1.7%, ANET’s debt level is relatively low. ANET is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
ANET’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ANET’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Arista Networks to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANET’s future growth? Take a look at our free research report of analyst consensus for ANET’s outlook.
- Valuation: What is ANET 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 ANET 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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