While small-cap stocks, such as Vente-Unique.com SA (EPA:ALVU) with its market cap of €46m, 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 vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into ALVU here.
Does ALVU Produce Much Cash Relative To Its Debt?
ALVU has built up its total debt levels in the last twelve months, from €1.5m to €1.9m – this includes long-term debt. With this growth in debt, ALVU’s cash and short-term investments stands at €11m , ready to be used for running the business. Additionally, ALVU has generated €3.5m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 183%, signalling that ALVU’s debt is appropriately covered by operating cash.
Can ALVU meet its short-term obligations with the cash in hand?
Looking at ALVU’s €21m in current liabilities, the company has been able to meet these obligations given the level of current assets of €32m, with a current ratio of 1.53x. The current ratio is the number you get when you divide current assets by current liabilities. For Online Retail companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is ALVU’s debt level acceptable?
With a debt-to-equity ratio of 14%, ALVU’s debt level may be seen as prudent. ALVU is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if ALVU’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 ALVU, the ratio of 47.4x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ALVU ample headroom to grow its debt facilities.
Next Steps:
ALVU’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ALVU’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Vente-Unique.com to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ALVU’s future growth? Take a look at our free research report of analyst consensus for ALVU’s outlook.
- Valuation: What is ALVU 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 ALVU 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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