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Stocks with market capitalization between $2B and $10B, such as Oracle Financial Services Software Limited (NSE:OFSS) with a size of ₹347.81b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at OFSS’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into OFSS here.
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Does OFSS face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Oracle Financial Services Software has no debt. 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 OFSS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can OFSS meet its short-term obligations with the cash in hand?
Since Oracle Financial Services Software doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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. With current liabilities at ₹11.77b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.19x. Having said that, anything above 3x may be considered excessive by some investors. They might argue OFSS is leaving too much capital in low-earning investments.
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OFSS has no debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure OFSS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Oracle Financial Services Software to get a better picture of the stock by looking at: