Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like CACI International Inc (NYSE:CACI), with a market cap of US$5.0b, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. CACI’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 CACI here.
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CACI’s Debt (And Cash Flows)
Over the past year, CACI has ramped up its debt from US$1.1b to US$1.8b , which includes long-term debt. With this rise in debt, CACI currently has US$94m remaining in cash and short-term investments to keep the business going. On top of this, CACI has generated US$527m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 30%, indicating that CACI’s operating cash is sufficient to cover its debt.
Does CACI’s liquid assets cover its short-term commitments?
At the current liabilities level of US$702m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.54x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for IT companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is CACI’s debt level acceptable?
CACI is a relatively highly levered company with a debt-to-equity of 75%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether CACI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CACI's, case, the ratio of 9.47x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CACI ample headroom to grow its debt facilities.
Although CACI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around CACI's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CACI's financial health. Other important fundamentals need to be considered alongside. You should continue to research CACI International to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CACI’s future growth? Take a look at our free research report of analyst consensus for CACI’s outlook.
- Valuation: What is CACI 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 CACI 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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