Yahoo Finance How Financially Strong Is Perspecta Inc (NYSE:PRSP)?
Mid-caps stocks, like Perspecta Inc (NYSE:PRSP) with a market capitalization of US$3.76B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. PRSP’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into PRSP here. See our latest analysis for Perspecta
Does PRSP generate an acceptable amount of cash through operations?
PRSP’s debt levels have fallen from US$350.00M to US$294.00M over the last 12 months made up of predominantly near term debt. With this debt repayment, PRSP’s cash and short-term investments stands at US$0 , ready to deploy into the business. On top of this, PRSP has generated cash from operations of US$124.80M in the last twelve months, leading to an operating cash to total debt ratio of 42.45%, indicating that PRSP’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PRSP’s case, it is able to generate 0.42x cash from its debt capital.
Can PRSP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$466.00M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.1x. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does PRSP face the risk of succumbing to its debt-load?
PRSP is a relatively highly levered company with a debt-to-equity of 70.67%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if PRSP’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 PRSP, the ratio of 10.3x suggests that interest is comfortably 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:
PRSP’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 PRSP’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PRSP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Perspecta to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PRSP’s future growth? Take a look at our free research report of analyst consensus for PRSP’s outlook.
Valuation: What is PRSP 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 PRSP 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 pass 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.
