Does SS&C Technologies Holdings (NASDAQ: SSNC) have a healthy balance sheet?

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Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say this when he says “The biggest risk in investing is not price volatility, but if you will suffer a loss. permanent capital “. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We can see that SS&C Technologies Holdings, Inc. (NASDAQ: SSNC) uses debt in its business. But the real question is whether this debt makes the business risky.

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

What is the net debt of SS&C Technologies Holdings?

You can click on the graph below for historical figures, but it shows that SS&C Technologies Holdings was in debt of US $ 6.14 billion in September 2021, down from US $ 6.84 billion a year earlier. On the other hand, it has $ 351.1 million in cash, resulting in net debt of around $ 5.79 billion.

NasdaqGS: SSNC Debt to Equity History November 16, 2021

How healthy is SS&C Technologies Holdings’ balance sheet?

Zooming in on the latest balance sheet data, we can see that SS&C Technologies Holdings had a liability of US $ 3.57 billion due within 12 months and a liability of US $ 7.45 billion beyond. In compensation for these obligations, it had cash of US $ 351.1 million as well as receivables valued at US $ 736.3 million due within 12 months. Its liabilities therefore total $ 9.93 billion more than the combination of its cash and short-term receivables.

This deficit is not that big as SS&C Technologies Holdings is worth US $ 20.0 billion and could therefore probably raise enough capital to consolidate its balance sheet, should the need arise. However, it is always worth taking a close look at your ability to repay your debt.

In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.

SS&C Technologies Holdings’ debt is 3.1 times its EBITDA, and its EBIT covers its interest expense 6.2 times. This suggests that while debt levels are significant, we would stop calling them problematic. If SS&C Technologies Holdings can continue to grow its EBIT at the rate of 20% last year compared to last year, then its debt will be more manageable. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether SS&C Technologies Holdings can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, a business can only repay its debts with hard cash, not with book profits. The logical step is therefore to examine the proportion of this EBIT that corresponds to the actual free cash flow. Fortunately for all shareholders, SS&C Technologies Holdings has actually generated more free cash flow than EBIT over the past three years. This kind of solid silver generation warms our hearts like a puppy in a bumblebee costume.

Our point of view

The good news is that SS&C Technologies Holdings’ demonstrated ability to convert EBIT to free cash flow delights us like a fluffy puppy does a toddler. But frankly, we think its net debt to EBITDA undermines that impression a bit. All these things considered, it looks like SS&C Technologies Holdings can comfortably manage its current debt levels. On the plus side, this leverage can increase returns to shareholders, but the potential downside is more risk of loss, so it’s worth watching the balance sheet. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. We have identified 1 warning sign with SS&C Technologies Holdings, and understanding them should be part of your investment process.

If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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