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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider CGI Inc. (TSE:GIB.A). With a market valuation of CA$28b, GIB.A is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for GIB.A, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Does GIB.A Produce Much Cash Relative To Its Debt?
GIB.A has built up its total debt levels in the last twelve months, from CA$1.9b to CA$2.2b , which accounts for long term debt. With this rise in debt, GIB.A's cash and short-term investments stands at CA$544m to keep the business going. Additionally, GIB.A has produced cash from operations of CA$1.5b during the same period of time, resulting in an operating cash to total debt ratio of 69%, meaning that GIB.A’s operating cash is sufficient to cover its debt.
Can GIB.A meet its short-term obligations with the cash in hand?
With current liabilities at CA$3.1b, it appears that the company has been able to meet these obligations given the level of current assets of CA$3.7b, with a current ratio of 1.16x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for IT companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can GIB.A service its debt comfortably?
With debt at 31% 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. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In GIB.A's case, the ratio of 29.93x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like GIB.A are considered a risk-averse investment.
GIB.A’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for GIB.A's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research CGI to get a more holistic view 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.
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.