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Highlights:
Computacenter plc has reduced its debt significantly, with a current net cash position of £401.9 million as of June 2024.
The company maintains a strong balance sheet, with liquid assets roughly matching total liabilities, indicating effective debt management.
Despite a 14% decline in EBIT over the past year, Computacenter has demonstrated robust free cash flow, surpassing EBIT by 107% over the last three years.
Assessing the risk associated with a company often involves evaluating its debt levels. For Computacenter plc (LSE:CCC) , a critical examination reveals its current financial stance. As of June 2024, Computacenter reported a reduction in debt to £9.5 million from £16.5 million the previous year. With £411.4 million in cash, the company enjoys a net cash position of £401.9 million, a favorable scenario that mitigates the risks typically associated with debt.
The balance sheet analysis shows that Computacenter holds liabilities of £1.85 billion due within one year and £129.5 million beyond that. However, its cash reserves, along with £1.58 billion in receivables due within a year, adequately cover these liabilities. Given the company's size, the liquidity of its assets compared to total liabilities suggests a sound financial position, decreasing the likelihood of cash shortages.
While Computacenter's net cash balance presents a strong defense against potential financial distress, concerns remain. A notable 14% decline in earnings before interest and tax (EBIT) over the last year raises questions about future profitability. Should this trend persist, the company may encounter difficulties in maintaining its debt management.
However, it is essential to recognize that the ability to service debt relies not solely on earnings figures but also on cash flow. Over the past three years, Computacenter has consistently generated free cash flow exceeding its EBIT, reflecting strong cash conversion capabilities.
In conclusion, Computacenter’s robust net cash position and strong cash flow metrics suggest a manageable debt situation. While the balance sheet indicates stability, awareness of underlying operational performance and potential risks is crucial. The company currently exhibits two warning signs that warrant further examination in the investment analysis.