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Investors are always looking for growth in small-cap stocks like Wallenstam AB (publ) (STO:WALL B), with a market cap of kr30b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company’s balance sheet strength. Nevertheless, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into WALL B here.
Does WALL B Produce Much Cash Relative To Its Debt?
WALL B’s debt levels surged from kr20b to kr23b over the last 12 months , which accounts for long term debt. With this growth in debt, WALL B currently has kr496m remaining in cash and short-term investments , ready to be used for running the business. On top of this, WALL B has produced cash from operations of kr483m during the same period of time, leading to an operating cash to total debt ratio of 2.1%, meaning that WALL B’s debt is not covered by operating cash.
Does WALL B’s liquid assets cover its short-term commitments?
With current liabilities at kr13b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.067x. The current ratio is calculated by dividing current assets by current liabilities.
Does WALL B face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, WALL B is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if WALL B’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 WALL B, the ratio of 3.06x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving WALL B ample headroom to grow its debt facilities.
Although WALL B’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for WALL B’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Wallenstam to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WALL B’s future growth? Take a look at our free research report of analyst consensus for WALL B’s outlook.
- Historical Performance: What has WALL B’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.
- 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 firstname.lastname@example.org. 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.