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Lindab International AB (STO:LIAB) is a small-cap stock with a market capitalization of kr6.9b. 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? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into LIAB here.
Does LIAB produce enough cash relative to debt?
Over the past year, LIAB has reduced its debt from kr1.5b to kr1.2b , which also accounts for long term debt. With this debt repayment, LIAB’s cash and short-term investments stands at kr289m , ready to deploy into the business. Moreover, LIAB has produced kr593m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 52%, meaning that LIAB’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LIAB’s case, it is able to generate 0.52x cash from its debt capital.
Can LIAB pay its short-term liabilities?
At the current liabilities level of kr1.9b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.67x. Usually, for Building companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does LIAB face the risk of succumbing to its debt-load?
LIAB’s level of debt is appropriate relative to its total equity, at 26%. LIAB is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether LIAB is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In LIAB’s, case, the ratio of 60.78x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving LIAB ample headroom to grow its debt facilities.
LIAB has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for LIAB’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Lindab International to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LIAB’s future growth? Take a look at our free research report of analyst consensus for LIAB’s outlook.
- Valuation: What is LIAB 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 LIAB 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.
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 email@example.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.