How Financially Strong Is ACI Worldwide Inc (NASDAQ:ACIW)?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as ACI Worldwide Inc (NASDAQ:ACIW), with a market capitalization of US$3.0b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at ACIW’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ACIW here.
Check out our latest analysis for ACI Worldwide
Does ACIW produce enough cash relative to debt?
Over the past year, ACIW has maintained its debt levels at around US$680m made up of current and long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$59m , ready to deploy into the business. On top of this, ACIW has produced cash from operations of US$118m over the same time period, leading to an operating cash to total debt ratio of 17%, indicating that ACIW’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ACIW’s case, it is able to generate 0.17x cash from its debt capital.
Can ACIW pay its short-term liabilities?
With current liabilities at US$260m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.5x. Usually, for Software 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.
Is ACIW’s debt level acceptable?
With a debt-to-equity ratio of 72%, ACIW can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if ACIW’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 ACIW, the ratio of 3.27x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ACIW’s high interest coverage is seen as responsible and safe practice.
Next Steps:
ACIW’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ACIW has been performing in the past. You should continue to research ACI Worldwide to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ACIW’s future growth? Take a look at our free research report of analyst consensus for ACIW’s outlook.
Valuation: What is ACIW 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 ACIW 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
