Altia Oyj (HEL:ALTIA) is a small-cap stock with a market capitalization of €278m. 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 crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into ALTIA here.
Does ALTIA produce enough cash relative to debt?
ALTIA’s debt levels surged from €75m to €103m over the last 12 months , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at €26m for investing into the business. Moreover, ALTIA has produced €18m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 17%, signalling that ALTIA’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ALTIA’s case, it is able to generate 0.17x cash from its debt capital.
Does ALTIA’s liquid assets cover its short-term commitments?
With current liabilities at €150m, it appears that the company has been able to meet these obligations given the level of current assets of €200m, with a current ratio of 1.33x. Usually, for Beverage companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ALTIA service its debt comfortably?
ALTIA is a relatively highly levered company with a debt-to-equity of 76%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ALTIA’s case, the ratio of 15.71x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ALTIA’s high interest coverage is seen as responsible and safe practice.
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Although ALTIA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for ALTIA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Altia Oyj to get a more holistic view of the small-cap by looking at: