While small-cap stocks, such as Aedas Homes, S.A.U. (BME:AEDAS) with its market cap of €1.1b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into AEDAS here.
AEDAS’s Debt (And Cash Flows)
Over the past year, AEDAS has ramped up its debt from €70m to €154m , which includes long-term debt. With this increase in debt, AEDAS’s cash and short-term investments stands at €103m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AEDAS’s operating efficiency ratios such as ROA here.
Can AEDAS meet its short-term obligations with the cash in hand?
With current liabilities at €268m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.6x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Can AEDAS service its debt comfortably?
AEDAS’s level of debt is appropriate relative to its total equity, at 16%. This range is considered safe as AEDAS is not taking on too much debt obligation, which may be constraining for future growth.
AEDAS’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AEDAS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Aedas HomesU to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AEDAS’s future growth? Take a look at our free research report of analyst consensus for AEDAS’s outlook.
- Valuation: What is AEDAS 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 AEDAS is currently mispriced by the market.
- 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.
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