Why Convergys Corporation (NYSE:CVG) Is A Financially Healthy Company
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Convergys Corporation (NYSE:CVG), with a market capitalization of US$2.31B, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at CVG’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into CVG here. Check out our latest analysis for Convergys
Does CVG generate an acceptable amount of cash through operations?
CVG’s debt levels have fallen from US$298.80M to US$268.60M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, CVG currently has US$207.20M remaining in cash and short-term investments for investing into the business. On top of this, CVG has generated cash from operations of US$263.00M during the same period of time, leading to an operating cash to total debt ratio of 97.92%, meaning that CVG’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CVG’s case, it is able to generate 0.98x cash from its debt capital.
Does CVG’s liquid assets cover its short-term commitments?
At the current liabilities level of US$323.00M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.66x. For IT companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can CVG service its debt comfortably?
With a debt-to-equity ratio of 20.39%, CVG’s debt level may be seen as prudent. This range is considered safe as CVG is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether CVG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CVG’s, case, the ratio of 12.13x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving CVG ample headroom to grow its debt facilities.
Next Steps:
CVG’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CVG has been performing in the past. I suggest you continue to research Convergys to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CVG’s future growth? Take a look at our free research report of analyst consensus for CVG’s outlook.
Valuation: What is CVG 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 CVG 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.
