SW Umwelttechnik Stoiser & Wolschner AG (WBAG:SWUT) is a small-cap stock with a market capitalization of €6.09M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into SWUT here.
Does SWUT generate an acceptable amount of cash through operations?
SWUT’s debt level has been constant at around €62.43M over the previous year – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at €2.23M , ready to deploy into the business. On top of this, SWUT has produced €5.18M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 8.30%, indicating that SWUT’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SWUT’s case, it is able to generate 0.083x cash from its debt capital.
Does SWUT’s liquid assets cover its short-term commitments?
Looking at SWUT’s most recent €14.94M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €23.01M, with a current ratio of 1.54x. Usually, for Construction companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does SWUT face the risk of succumbing to its debt-load?SWUT is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if SWUT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For SWUT, the ratio of 1.77x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as SWUT’s low interest coverage already puts the company at higher risk of default.
SWUT’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how SWUT has been performing in the past. I suggest you continue to research SW Umwelttechnik Stoiser & Wolschner to get a better picture of the stock by looking at:
- 1. Valuation: What is SWUT 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 SWUT is currently mispriced by the market.
- 2. Historical Performance: What has SWUT’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.