Is Almirall SA's (BME:ALM) Liquidity Good Enough?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Almirall SA (BME:ALM), with a market cap of €2.00b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at ALM’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into ALM here.

View our latest analysis for Almirall

Does ALM produce enough cash relative to debt?

Over the past year, ALM has reduced its debt from €317.50m to €150.00m , which comprises of short- and long-term debt. With this debt payback, ALM's cash and short-term investments stands at €137.00m for investing into the business. Additionally, ALM has produced €82.29m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 54.86%, signalling that ALM’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In ALM’s case, it is able to generate 0.55x cash from its debt capital.

Can ALM pay its short-term liabilities?

With current liabilities at €279.00m, it seems that the business has been able to meet these obligations given the level of current assets of €373.00m, with a current ratio of 1.34x. For Pharmaceuticals companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does ALM face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 12.93%, ALM's debt level may be seen as prudent. ALM is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for ALM, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

ALM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how ALM has been performing in the past. You should continue to research Almirall to get a better picture of the stock by looking at:

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

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.