What Investors Should Know About Ambea AB (publ)'s (STO:AMBEA) Financial Strength

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Investors are always looking for growth in small-cap stocks like Ambea AB (publ) (STO:AMBEA), with a market cap of kr5.5b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into AMBEA here.

Does AMBEA produce enough cash relative to debt?

AMBEA has shrunken its total debt levels in the last twelve months, from kr2.5b to kr2.2b – this includes long-term debt. With this reduction in debt, AMBEA's cash and short-term investments stands at kr80m , ready to deploy into the business. On top of this, AMBEA has generated kr532m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 24%, indicating that AMBEA’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AMBEA’s case, it is able to generate 0.24x cash from its debt capital.

Can AMBEA meet its short-term obligations with the cash in hand?

Looking at AMBEA’s kr2.6b in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of kr1.0b, leading to a current ratio of 0.39x.

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

AMBEA is a relatively highly levered company with a debt-to-equity of 83%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.

Next Steps:

AMBEA’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. But, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure AMBEA has company-specific issues impacting its capital structure decisions. You should continue to research Ambea to get a more holistic view of the stock by looking at:

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

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.