Yahoo Finance Is CGI Group Inc (TSE:GIB.A) A Financially Strong Company?
With a market capitalization of CA$24b, CGI Group Inc (TSE:GIB.A) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public 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. Today I will analyse the latest financial data for GIB.A to determine is solvency and liquidity and whether the stock is a sound investment.
Check out our latest analysis for CGI Group
How much cash does GIB.A generate through its operations?
GIB.A’s debt level has been constant at around CA$1.9b over the previous year including long-term debt. At this current level of debt, GIB.A’s cash and short-term investments stands at CA$184m for investing into the business. On top of this, GIB.A has produced cash from operations of CA$1.5b over the same time period, resulting in an operating cash to total debt ratio of 80%, signalling that GIB.A’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 GIB.A’s case, it is able to generate 0.8x cash from its debt capital.
Can GIB.A pay its short-term liabilities?
Looking at GIB.A’s CA$3.1b in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of CA$3.1b, leading to a current ratio of 1x.
Does GIB.A face the risk of succumbing to its debt-load?
With debt at 28% of equity, GIB.A may be thought of as appropriately levered. This range is considered safe as GIB.A is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if GIB.A’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For GIB.A, the ratio of 28.34x suggests that interest is amply covered. Large-cap investments like GIB.A are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
GIB.A has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven’t considered other factors such as how GIB.A has been performing in the past. I recommend you continue to research CGI Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for GIB.A’s future growth? Take a look at our free research report of analyst consensus for GIB.A’s outlook.
Valuation: What is GIB.A 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 GIB.A 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 editorial-team@simplywallst.com.
