Is Le Bélier SA’s (EPA:BELI) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Le Bélier SA (EPA:BELI), with a market cap of €212m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health 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, this is just a partial view of the stock, and I suggest you dig deeper yourself into BELI here.

Does BELI Produce Much Cash Relative To Its Debt?

Over the past year, BELI has maintained its debt levels at around €121m which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at €112m to keep the business going. Additionally, BELI has produced €43m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 36%, indicating that BELI’s operating cash is sufficient to cover its debt.

Does BELI’s liquid assets cover its short-term commitments?

With current liabilities at €128m, the company has been able to meet these commitments with a current assets level of €230m, leading to a 1.8x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Metals and Mining companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

ENXTPA:BELI Historical Debt, March 19th 2019
ENXTPA:BELI Historical Debt, March 19th 2019

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

With debt reaching 80% of equity, BELI may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can test if BELI’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 BELI, the ratio of 72.94x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as BELI’s high interest coverage is seen as responsible and safe practice.

Next Steps:

BELI’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. Since there is also no concerns around BELI’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how BELI has been performing in the past. I recommend you continue to research Le Bélier to get a more holistic view of the small-cap by looking at:

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