Mid-caps stocks, like Avnet Inc (NASDAQ:AVT) with a market capitalization of US$4.67B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine AVT’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 AVT here. Check out our latest analysis for Avnet
How does AVT’s operating cash flow stack up against its debt?
AVT has shrunken its total debt levels in the last twelve months, from US$2.49B to US$1.78B , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at US$1.12B for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of AVT’s operating efficiency ratios such as ROA here.
Can AVT pay its short-term liabilities?
Looking at AVT’s most recent US$2.45B liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$7.53B, leading to a 3.07x current account ratio. However, anything above 3x is considered high and could mean that AVT has too much idle capital in low-earning investments.
Does AVT face the risk of succumbing to its debt-load?
AVT’s level of debt is appropriate relative to its total equity, at 32.10%. AVT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for AVT, and the company also has the ability and headroom to increase debt if needed going forward.
AVT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how AVT has been performing in the past. You should continue to research Avnet to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AVT’s future growth? Take a look at our free research report of analyst consensus for AVT’s outlook.
- Valuation: What is AVT 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 AVT 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.
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.