Streamwide SA. (ENXTPA:ALSTW) is a small-cap stock with a market capitalization of €18.89M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Software industry, in particular ones that run negative earnings, tend to be high risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into ALSTW here.
Does ALSTW generate enough cash through operations?
ALSTW’s debt levels have fallen from €1.81M to €1.67M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, ALSTW’s cash and short-term investments stands at €4.51M for investing into the business. Moreover, ALSTW has generated cash from operations of €240.00K over the same time period, resulting in an operating cash to total debt ratio of 14.34%, meaning that ALSTW’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In ALSTW’s case, it is able to generate 0.14x cash from its debt capital.
Can ALSTW meet its short-term obligations with the cash in hand?
At the current liabilities level of €4.71M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €10.15M, with a current ratio of 2.16x. Generally, for Software companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does ALSTW face the risk of succumbing to its debt-load?
With debt at 14.72% of equity, ALSTW may be thought of as appropriately levered. This range is considered safe as ALSTW is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with ALSTW, and the company has plenty of headroom and ability to raise debt should it need to in the future.Next Steps:
Although ALSTW’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, 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 ALSTW’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Streamwide to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for ALSTW’s future growth? Take a look at our free research report of analyst consensus for ALSTW’s outlook.
- 2. Historical Performance: What has ALSTW’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.
- 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.