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Randstad N.V. (AMS:RAND), a large-cap worth €8.8b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for RAND, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
See our latest analysis for Randstad
Does RAND Produce Much Cash Relative To Its Debt?
RAND's debt levels surged from €1.4b to €1.9b over the last 12 months – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €263m to keep the business going. On top of this, RAND has produced €777m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 41%, meaning that RAND’s current level of operating cash is high enough to cover debt.
Does RAND’s liquid assets cover its short-term commitments?
Looking at RAND’s €5.5b in current liabilities, the company may not be able to easily meet these obligations given the level of current assets of €5.4b, with a current ratio of 0.98x. The current ratio is calculated by dividing current assets by current liabilities.
Can RAND service its debt comfortably?
RAND’s level of debt is appropriate relative to its total equity, at 32%. RAND is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if RAND’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For RAND, the ratio of 48.37x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes RAND and other large-cap investments thought to be safe.
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RAND has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. Keep in mind I haven't considered other factors such as how RAND has been performing in the past. I recommend you continue to research Randstad to get a better picture of the stock by looking at: