Is Amper, S.A.'s (BME:AMP) Balance Sheet Strong Enough To Weather A Storm?

While small-cap stocks, such as Amper, S.A. (BME:AMP) with its market cap of €280m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to 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, these checks don't give you a full picture, so I suggest you dig deeper yourself into AMP here.

AMP’s Debt (And Cash Flows)

AMP has built up its total debt levels in the last twelve months, from €25m to €27m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €13m , ready to be used for running the business. On top of this, AMP has produced cash from operations of €4.5m over the same time period, resulting in an operating cash to total debt ratio of 16%, meaning that AMP’s operating cash is less than its debt.

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

With current liabilities at €83m, it appears that the company has been able to meet these commitments with a current assets level of €108m, leading to a 1.29x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Communications companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

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

With debt reaching 67% of equity, AMP may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if AMP’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 AMP, the ratio of 23.25x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving AMP ample headroom to grow its debt facilities.

Next Steps:

AMP’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how AMP has been performing in the past. I suggest you continue to research Amper to get a better picture of the small-cap by looking at:

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