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Is Euronet Worldwide Inc’s (NASDAQ:EEFT) Balance Sheet A Threat To Its Future?

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Euronet Worldwide Inc (NASDAQ:EEFT), with a market capitalization of US$4.93b, rarely draw their attention from the investing community. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at EEFT’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EEFT here.

Check out our latest analysis for Euronet Worldwide

How much cash does EEFT generate through its operations?

Over the past year, EEFT has ramped up its debt from US$869.5m to US$1.01b , which comprises of short- and long-term debt. With this growth in debt, EEFT’s cash and short-term investments stands at US$1.16b for investing into the business. On top of this, EEFT has generated US$257.4m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 25.6%, signalling that EEFT’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 EEFT’s case, it is able to generate 0.26x cash from its debt capital.

Can EEFT meet its short-term obligations with the cash in hand?

At the current liabilities level of US$1.84b liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$2.17b, leading to a 1.18x current account ratio. For IT companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:EEFT Historical Debt August 29th 18
NasdaqGS:EEFT Historical Debt August 29th 18

Does EEFT face the risk of succumbing to its debt-load?

With debt reaching 93.9% of equity, EEFT may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if EEFT’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 EEFT, the ratio of 9.81x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

EEFT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around EEFT’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for EEFT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Euronet Worldwide to get a more holistic view of the mid-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for EEFT’s future growth? Take a look at our free research report of analyst consensus for EEFT’s outlook.

  2. Valuation: What is EEFT 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 EEFT is currently mispriced by the market.

  3. 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.