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Admicom Oyj (HEL:ADMCM), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is ADMCM will have to follow strict debt obligations which will reduce its financial flexibility. While ADMCM has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
See our latest analysis for Admicom Oyj
Is ADMCM growing fast enough to value financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. Either ADMCM does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. ADMCM’s revenue growth over the past year is an impressively high double-digit 50.6%. So, it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.
Does ADMCM’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Admicom Oyj has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at €1.1m, it seems that the business has been able to meet these commitments with a current assets level of €2.3m, leading to a 2.02x current account ratio. Usually, for Software 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.
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As a high-growth company, it may be beneficial for ADMCM to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, ADMCM’s financial situation may change. I admit this is a fairly basic analysis for ADMCM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Admicom Oyj to get a better picture of the stock by looking at: