While small-cap stocks, such as Delta Drone SA (EPA:ALDR) with its market cap of €18.7m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that ALDR is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into ALDR here.
How does ALDR’s operating cash flow stack up against its debt?
Over the past year, ALDR has ramped up its debt from €2.8m to €4.8m , which comprises of short- and long-term debt. With this growth in debt, ALDR's cash and short-term investments stands at €2.1m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn't be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of ALDR’s operating efficiency ratios such as ROA here.
Does ALDR’s liquid assets cover its short-term commitments?
With current liabilities at €5.0m, it appears that the company has been able to meet these commitments with a current assets level of €6.6m, leading to a 1.31x current account ratio. For Aerospace & Defense companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too capital in low return investments.
Is ALDR’s debt level acceptable?
With a debt-to-equity ratio of 78.3%, ALDR can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since ALDR is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
ALDR’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. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ALDR's financial health. Other important fundamentals need to be considered alongside. You should continue to research Delta Drone to get a more holistic view of the stock by looking at:
- Historical Performance: What has ALDR'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.
- 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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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.