Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider EPAM Systems, Inc. (NYSE:EPAM). With a market valuation of US$9.7b, EPAM is a safe haven in times of market uncertainty due to its strong balance sheet. 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 EPAM, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Does EPAM Produce Much Cash Relative To Its Debt?
EPAM's debt level has been constant at around US$25m over the previous year which accounts for long term debt. At this current level of debt, EPAM currently has US$771m remaining in cash and short-term investments to keep the business going. On top of this, EPAM has generated cash from operations of US$292m in the last twelve months, leading to an operating cash to total debt ratio of 1167%, indicating that EPAM’s debt is appropriately covered by operating cash.
Can EPAM pay its short-term liabilities?
Looking at EPAM’s US$263m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.56x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can EPAM service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. EPAM’s level of debt is low relative to its total equity, at 2.0%. This range is considered safe as EPAM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
EPAM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure EPAM has company-specific issues impacting its capital structure decisions. I recommend you continue to research EPAM Systems to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EPAM’s future growth? Take a look at our free research report of analyst consensus for EPAM’s outlook.
- Valuation: What is EPAM 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 EPAM 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 firstname.lastname@example.org. 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.