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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Pivotal Software, Inc. (NYSE:PVTL), with a market capitalization of US$3.1b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. PVTL’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into PVTL here.
Can PVTL service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Pivotal Software, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with PVTL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does PVTL’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Pivotal Software has no solvency issues, which is 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. Looking at PVTL’s US$460m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$1.1b, with a current ratio of 2.29x. The current ratio is the number you get when you divide 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.
PVTL has zero-debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for PVTL's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Pivotal Software to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PVTL’s future growth? Take a look at our free research report of analyst consensus for PVTL’s outlook.
- Valuation: What is PVTL 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 PVTL 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 firstname.lastname@example.org. 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.