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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Evolution Gaming Group AB (publ) (STO:EVO), with a market cap of kr32b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at EVO’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into EVO here.
Does EVO Produce Much Cash Relative To Its Debt?
EVO has built up its total debt levels in the last twelve months, from €7.4m to €22m – this includes long-term debt. With this increase in debt, EVO currently has €104m remaining in cash and short-term investments to keep the business going. On top of this, EVO has generated €129m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 592%, indicating that EVO’s current level of operating cash is high enough to cover debt.
Can EVO meet its short-term obligations with the cash in hand?
Looking at EVO’s €82m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.37x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Hospitality 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.
Does EVO face the risk of succumbing to its debt-load?
With debt at 3.3% of equity, EVO may be thought of as having low leverage. EVO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether EVO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In EVO's, case, the ratio of 691x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
EVO 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 should an adverse event occur. I admit this is a fairly basic analysis for EVO's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Evolution Gaming Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EVO’s future growth? Take a look at our free research report of analyst consensus for EVO’s outlook.
- Valuation: What is EVO 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 EVO 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.