Are Cognizant Technology Solutions Corporation’s (NASDAQ:CTSH) Interest Costs Too High?
Investors pursuing a solid, dependable stock investment can often be led to Cognizant Technology Solutions Corporation (NASDAQ:CTSH), a large-cap worth $45.70B. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, the key to extending previous success is in the health of the company’s financials. I will provide an overview of Cognizant Technology Solutions’s financial liquidity and leverage to give you an idea of Cognizant Technology Solutions’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CTSH here. Check out our latest analysis for Cognizant Technology Solutions
How does CTSH’s operating cash flow stack up against its debt?
CTSH has shrunken its total debt levels in the last twelve months, from $1,283.0M to $912.0M , which is made up of current and long term debt. With this reduction in debt, CTSH currently has $5,169.0M remaining in cash and short-term investments , ready to deploy into the business. Moreover, CTSH has produced $1,621.0M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 177.74%, meaning that CTSH’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CTSH’s case, it is able to generate 1.78x cash from its debt capital.
Can CTSH meet its short-term obligations with the cash in hand?
With current liabilities at $2,418.0M, the company has been able to meet these commitments with a current assets level of $8,600.0M, leading to a 3.56x current account ratio. However, anything above 3x is considered high and could mean that CTSH has too much idle capital in low-earning investments.
Is CTSH’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. With a debt-to-equity ratio of 7.50%, CTSH’s debt level is relatively low. This range is considered safe as CTSH is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
CTSH has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure CTSH has company-specific issues impacting its capital structure decisions. You should continue to research Cognizant Technology Solutions to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for CTSH’s future growth? Take a look at our free research report of analyst consensus for CTSH’s outlook.
2. Valuation: What is CTSH 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 CTSH 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 pass 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.
