Investors are always looking for growth in small-cap stocks like Fountaine Pajot SA (EPA:ALFPC), with a market cap of €102m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into ALFPC here.
Does ALFPC produce enough cash relative to debt?
ALFPC's debt levels surged from €3.0m to €10m over the last 12 months , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €43m , ready to deploy into the business. On top of this, ALFPC has produced cash from operations of €24m over the same time period, leading to an operating cash to total debt ratio of 239%, indicating that ALFPC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ALFPC’s case, it is able to generate 2.39x cash from its debt capital.
Does ALFPC’s liquid assets cover its short-term commitments?
With current liabilities at €26m, the company has been able to meet these commitments with a current assets level of €71m, leading to a 2.69x current account ratio. Generally, for Leisure companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is ALFPC’s debt level acceptable?
ALFPC’s level of debt is appropriate relative to its total equity, at 35%. ALFPC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
ALFPC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, 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 ALFPC has company-specific issues impacting its capital structure decisions. I recommend you continue to research Fountaine Pajot to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALFPC’s future growth? Take a look at our free research report of analyst consensus for ALFPC’s outlook.
- Valuation: What is ALFPC 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 ALFPC 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
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.