In This Article:
Adyen NV (AMS:ADYEN), a large-cap worth €17.7b, 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. Assessing the most recent data for ADYEN, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
Check out our latest analysis for Adyen
Can ADYEN service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For Adyen, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with ADYEN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ADYEN meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Adyen has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of €867m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.38x. For IT companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Next Steps:
ADYEN has zero debt as well as ample cash to cover its short-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. This is only a rough assessment of financial health, and I’m sure ADYEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Adyen to get a better picture of the stock by looking at:
-
Future Outlook: What are well-informed industry analysts predicting for ADYEN’s future growth? Take a look at our free research report of analyst consensus for ADYEN’s outlook.
-
Valuation: What is ADYEN 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 ADYEN 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.