What Investors Should Know About ePlus inc’s (NASDAQ:PLUS) Financial Strength

While small-cap stocks, such as ePlus inc (NASDAQ:PLUS) with its market cap of US$1.2b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Electronic industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into PLUS here.

How much cash does PLUS generate through its operations?

PLUS’s debt level has been constant at around US$184m over the previous year – this includes both the current and long-term debt. At this current level of debt, PLUS’s cash and short-term investments stands at US$57m , ready to deploy into the business. Additionally, PLUS has generated US$37m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 20%, indicating that PLUS’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PLUS’s case, it is able to generate 0.2x cash from its debt capital.

Does PLUS’s liquid assets cover its short-term commitments?

With current liabilities at US$346m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.65x. Generally, for Electronic companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

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Is PLUS’s debt level acceptable?

With a debt-to-equity ratio of 48%, PLUS can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.

Next Steps:

At its current level of cash flow coverage, PLUS has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure PLUS has company-specific issues impacting its capital structure decisions. I suggest you continue to research ePlus to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for PLUS’s future growth? Take a look at our free research report of analyst consensus for PLUS’s outlook.
2. Valuation: What is PLUS 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 PLUS 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 [email protected].