What You Must Know About Euronet Worldwide, Inc.'s (NASDAQ:EEFT) Financial Strength
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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Euronet Worldwide, Inc. (NASDAQ:EEFT), with a market capitalization of US$8.7b, 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 EEFT’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EEFT here.
Check out our latest analysis for Euronet Worldwide
EEFT’s Debt (And Cash Flows)
EEFT's debt levels surged from US$635m to US$1.1b over the last 12 months , which includes long-term debt. With this rise in debt, EEFT's cash and short-term investments stands at US$1.2b , ready to be used for running the business. Moreover, EEFT has generated cash from operations of US$382m in the last twelve months, leading to an operating cash to total debt ratio of 34%, meaning that EEFT’s current level of operating cash is high enough to cover debt.
Can EEFT pay its short-term liabilities?
At the current liabilities level of US$1.7b, it appears that the company has been able to meet these commitments with a current assets level of US$2.2b, leading to a 1.28x current account ratio. The current ratio is the number you get when you divide 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 EEFT’s debt level acceptable?
With a debt-to-equity ratio of 60%, EEFT can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if EEFT’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 EEFT, the ratio of 10.21x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving EEFT ample headroom to grow its debt facilities.
Next Steps:
Although EEFT’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for EEFT's financial health. Other important fundamentals need to be considered alongside. You should continue to research Euronet Worldwide to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for EEFT’s future growth? Take a look at our free research report of analyst consensus for EEFT’s outlook.
Valuation: What is EEFT 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 EEFT 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 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.
