Stocks with market capitalization between $2B and $10B, such as Avnet Inc (NASDAQ:AVT) with a size of US$4.9b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. AVT’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AVT here.
Does AVT produce enough cash relative to debt?
AVT has shrunken its total debt levels in the last twelve months, from US$1.7b to US$1.6b – this includes both the current and long-term debt. With this reduction in debt, AVT’s cash and short-term investments stands at US$366m , ready to deploy into the business. Additionally, AVT has generated US$296m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 19%, meaning that AVT’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In AVT’s case, it is able to generate 0.19x cash from its debt capital.
Does AVT’s liquid assets cover its short-term commitments?
Looking at AVT’s most recent US$2.9b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$7.6b, with a current ratio of 2.64x. Usually, for Electronic companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does AVT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 34%, AVT’s debt level may be seen as prudent. This range is considered safe as AVT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with AVT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
AVT’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AVT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Avnet to get a more holistic view 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 past 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. For errors that warrant correction please contact the editor at email@example.com.