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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Cognizant Technology Solutions Corporation (NASDAQ:CTSH). With a market valuation of US$36b, CTSH is a safe haven in times of market uncertainty due to its strong balance sheet. 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 CTSH, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.

View our latest analysis for Cognizant Technology Solutions

Does CTSH Produce Much Cash Relative To Its Debt?

CTSH's debt levels surged from US$773m to US$1.6b over the last 12 months – this includes long-term debt. With this rise in debt, CTSH currently has US$3.7b remaining in cash and short-term investments to keep the business going. Additionally, CTSH has produced cash from operations of US$2.5b in the last twelve months, leading to an operating cash to total debt ratio of 154%, indicating that CTSH’s operating cash is sufficient to cover its debt.

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

At the current liabilities level of US$2.7b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.9x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for IT 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.

Can CTSH 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%. CTSH’s level of debt is low relative to its total equity, at 7.0%. CTSH is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

CTSH has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how CTSH has been performing in the past. I suggest you continue to research Cognizant Technology Solutions to get a more holistic view of the stock by looking at:

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

2. Valuation: What is CTSH 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 CTSH 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.