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ANSYS, Inc. (NASDAQ:ANSS), a large-cap worth US$17b, 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 firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for ANSS to determine is solvency and liquidity and whether the stock is a sound investment.
Does ANSS face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For ANSYS, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with ANSS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ANSS pay its short-term liabilities?
Given zero long-term debt on its balance sheet, ANSYS has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at ANSS’s US$503m in current liabilities, the company has been able to meet these commitments with a current assets level of US$1.1b, leading to a 2.11x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Software companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
ANSS has zero debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I'm sure ANSS has company-specific issues impacting its capital structure decisions. I recommend you continue to research ANSYS to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANSS’s future growth? Take a look at our free research report of analyst consensus for ANSS’s outlook.
- Valuation: What is ANSS 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 ANSS 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.
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 email@example.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.