Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as F5 Networks, Inc. (NASDAQ:FFIV) with a market-capitalization of US$9.4b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at FFIV’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 FFIV here.
Does FFIV 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 mid-cap should have a ratio less than 40%. The good news for investors is that F5 Networks has no debt. 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 FFIV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can FFIV pay its short-term liabilities?
Since F5 Networks doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$1.0b, the company has been able to meet these commitments with a current assets level of US$1.6b, leading to a 1.55x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Communications companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
FFIV has no debt as well as ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, but some degree of debt may also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how FFIV has performed in the past. You should continue to research F5 Networks to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FFIV’s future growth? Take a look at our free research report of analyst consensus for FFIV’s outlook.
- Valuation: What is FFIV 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 FFIV 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.
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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.