Is All for One Steeb AG (ETR:A1OS) A Financially Sound Company?

All for One Steeb AG (ETR:A1OS) is a small-cap stock with a market capitalization of €256m. 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? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into A1OS here.

Does A1OS Produce Much Cash Relative To Its Debt?

A1OS's debt levels have fallen from €31m to €29m over the last 12 months – this includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at €36m , ready to be used for running the business. Moreover, A1OS has generated €21m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 71%, signalling that A1OS’s debt is appropriately covered by operating cash.

Can A1OS meet its short-term obligations with the cash in hand?

With current liabilities at €65m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.6x. The current ratio is the number you get when you divide current assets by current liabilities. For IT companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

Is A1OS’s debt level acceptable?

A1OS’s level of debt is appropriate relative to its total equity, at 35%. This range is considered safe as A1OS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether A1OS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In A1OS's, case, the ratio of 17.49x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as A1OS’s high interest coverage is seen as responsible and safe practice.

Next Steps:

A1OS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure A1OS has company-specific issues impacting its capital structure decisions. I recommend you continue to research All for One Steeb to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for A1OS’s future growth? Take a look at our free research report of analyst consensus for A1OS’s outlook.
2. Valuation: What is A1OS 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 A1OS 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.