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Are Take-Two Interactive Software Inc’s (NASDAQ:TTWO) Interest Costs Too High?

The size of Take-Two Interactive Software Inc (NASDAQ:TTWO), a US$13.08B large-cap, often attracts investors seeking a reliable investment in the stock market. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the key to their continued success lies in its financial health. Let’s take a look at Take-Two Interactive Software’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into TTWO here. Check out our latest analysis for Take-Two Interactive Software

Does TTWO produce enough cash relative to debt?

TTWO has shrunken its total debt levels in the last twelve months, from US$497.94M to US$251.93M , which comprises of short- and long-term debt. With this debt repayment, TTWO currently has US$1.39B remaining in cash and short-term investments , ready to deploy into the business. On top of this, TTWO has generated cash from operations of US$331.43M during the same period of time, leading to an operating cash to total debt ratio of 131.56%, indicating that TTWO’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TTWO’s case, it is able to generate 1.32x cash from its debt capital.

Can TTWO meet its short-term obligations with the cash in hand?

With current liabilities at US$1.69B, it seems that the business has been able to meet these commitments with a current assets level of US$2.20B, leading to a 1.3x current account ratio. Usually, for Software companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:TTWO Historical Debt May 16th 18
NasdaqGS:TTWO Historical Debt May 16th 18

Can TTWO service its debt comfortably?

Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. The good news for investors is that Take-Two Interactive Software has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with TTWO, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

TTWO’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for TTWO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Take-Two Interactive Software to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TTWO’s future growth? Take a look at our free research report of analyst consensus for TTWO’s outlook.

  2. Valuation: What is TTWO 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 TTWO is currently mispriced by the market.

  3. 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.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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