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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Guidewire Software, Inc. (NYSE:GWRE), with a market capitalization of US$8.2b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. GWRE’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. Don’t forget that this is a general and concentrated examination of Guidewire Software's financial health, so you should conduct further analysis into GWRE here.
Does GWRE Produce Much Cash Relative To Its Debt?
GWRE's debt level has been constant at around US$314m over the previous year which accounts for long term debt. At this current level of debt, GWRE currently has US$1.0b remaining in cash and short-term investments , ready to be used for running the business. On top of this, GWRE has generated US$117m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 37%, signalling that GWRE’s current level of operating cash is high enough to cover debt.
Does GWRE’s liquid assets cover its short-term commitments?
At the current liabilities level of US$189m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.38x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does GWRE face the risk of succumbing to its debt-load?
GWRE’s level of debt is appropriate relative to its total equity, at 21%. This range is considered safe as GWRE is not taking on too much debt obligation, which may be constraining for future growth.
GWRE’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how GWRE has been performing in the past. I suggest you continue to research Guidewire Software to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GWRE’s future growth? Take a look at our free research report of analyst consensus for GWRE’s outlook.
- Valuation: What is GWRE 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 GWRE 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 email@example.com. 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.