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All You Need To Know About NetScout Systems, Inc.'s (NASDAQ:NTCT) Financial Health

Simply Wall St

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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like NetScout Systems, Inc. (NASDAQ:NTCT), with a market cap of US$2.0b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. NTCT’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. Don’t forget that this is a general and concentrated examination of NetScout Systems's financial health, so you should conduct further analysis into NTCT here.

Check out our latest analysis for NetScout Systems

NTCT’s Debt (And Cash Flows)

Over the past year, NTCT has reduced its debt from US$600m to US$550m – this includes long-term debt. With this reduction in debt, NTCT currently has US$486m remaining in cash and short-term investments , ready to be used for running the business. Moreover, NTCT has produced US$150m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 27%, indicating that NTCT’s operating cash is sufficient to cover its debt.

Does NTCT’s liquid assets cover its short-term commitments?

Looking at NTCT’s US$380m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.11x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Communications companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:NTCT Historical Debt, July 19th 2019
NasdaqGS:NTCT Historical Debt, July 19th 2019

Is NTCT’s debt level acceptable?

With debt at 27% of equity, NTCT may be thought of as appropriately levered. This range is considered safe as NTCT is not taking on too much debt obligation, which may be constraining for future growth. NTCT's risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

NTCT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure NTCT has company-specific issues impacting its capital structure decisions. I recommend you continue to research NetScout Systems to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NTCT’s future growth? Take a look at our free research report of analyst consensus for NTCT’s outlook.

  2. Valuation: What is NTCT 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 NTCT 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.