F5 Networks, Inc. (NASDAQ:FFIV), a large-cap worth US$10b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. 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 FFIV, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Can FFIV 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. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For FFIV, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with FFIV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does FFIV’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, F5 Networks 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. At the current liabilities level of US$954m, it seems that the business has been able to meet these commitments with a current assets level of US$1.4b, leading to a 1.49x current account ratio. Generally, for Communications companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
FFIV has zero debt as well as ample cash to cover its short-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I’m sure FFIV has company-specific issues impacting its capital structure decisions. I recommend you continue to research F5 Networks to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FFIV’s future growth? Take a look at our free research report of analyst consensus for FFIV’s outlook.
- Valuation: What is FFIV 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 FFIV 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.