Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Paychex Inc (NASDAQ:PAYX). With a market valuation of USD $22.65B, PAYX is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for PAYX to determine is solvency and liquidity and whether the stock is a sound investment. See our latest analysis for PAYX

Does PAYX 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 large-cap stocks is considered as financially healthy, as a rule of thumb. For PAYX, the debt-to-equity ratio is 2.94%, which indicates that the company faces low risk associated with debt.

Does PAYX generate enough cash through operations?

A basic way to evaluate PAYX’s debt management is to see whether the cash flow generated from the business is at a relatively high level compared to the debt capital invested. This is also a test for whether PAYX has the ability to repay its debt with cash from its business, which is less of a concern for large companies. PAYX’s recent operating cash flow exceeded its debt obligations within the past year,which indicates extremely low risk of PAYX not being able to meet its debt near-team, given that it generates enough cash in a year to pay off its current debt.This reflects proper cash and debt management by the company – great news for both debtholders and shareholders.

Next Steps:

Are you a shareholder? Although PAYX’s debt level is relatively low, it has the ability to efficiently utilise its borrowings to generate ample cash flow coverage. Since PAYX’s financial situation could change over time, I suggest researching market expectations for PAYX’s future growth on our free analysis platform.

Are you a potential investor? Although understanding the serviceability of debt is important when evaluating which companies are viable investments, it shouldn’t be the deciding factor. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. PAYX’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.

To help readers see pass 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.