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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Evolution Gaming Group AB (publ) (STO:EVO), with a market capitalization of kr32b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. EVO’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 EVO here.

See our latest analysis for Evolution Gaming Group

Does EVO Produce Much Cash Relative To Its Debt?

EVO has built up its total debt levels in the last twelve months, from €7.4m to €22m – this includes long-term debt. With this increase in debt, EVO currently has €104m remaining in cash and short-term investments , ready to be used for running the business. Additionally, EVO has generated €129m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 592%, meaning that EVO’s current level of operating cash is high enough to cover debt.

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

At the current liabilities level of €82m, it seems that the business has been able to meet these obligations given the level of current assets of €195m, with a current ratio of 2.37x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Hospitality 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.

Is EVO’s debt level acceptable?

With a debt-to-equity ratio of 3.3%, EVO's debt level is relatively low. EVO is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether EVO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In EVO's, case, the ratio of 691x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as EVO’s high interest coverage is seen as responsible and safe practice.

Next Steps:

EVO’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for EVO's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Evolution Gaming Group to get a more holistic view of the stock by looking at:

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

2. Valuation: What is EVO 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 EVO 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.