Want to participate in a research study? Help shape the future of investing tools and earn a $60 gift card!
Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider Take-Two Interactive Software, Inc. (NASDAQ:TTWO). With a market valuation of US$10b, TTWO is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Assessing the most recent data for TTWO, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
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. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Take-Two Interactive Software has no debt. 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 TTWO, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can TTWO pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Take-Two Interactive Software has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at TTWO’s US$2.1b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$3.0b, leading to a 1.42x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Entertainment 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.
TTWO has no debt in addition to ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I'm sure TTWO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Take-Two Interactive Software to get a better picture of the stock by looking at:
- 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.
- 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.
- 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.