What Does ALDA Spólka Akcyjna's (WSE:ALD) Balance Sheet Tell Us About It?

Simply Wall St

Fri, Jun 7, 2019, 4:08 AM

Investors are always looking for growth in small-cap stocks like ALDA Spólka Akcyjna (WSE:ALD), with a market cap of zł6.0m. However, an important fact which most ignore is: how financially healthy is the business? Given that ALD is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into ALD here.

Does ALD Produce Much Cash Relative To Its Debt?

ALD's debt levels surged from zł1.5m to zł1.9m over the last 12 months , which accounts for long term debt. With this growth in debt, ALD's cash and short-term investments stands at zł34k , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ALD’s operating efficiency ratios such as ROA here.

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

At the current liabilities level of zł6.3m, the company has been able to meet these obligations given the level of current assets of zł7.3m, with a current ratio of 1.15x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Consumer Durables companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Is ALD’s debt level acceptable?

With a debt-to-equity ratio of 50%, ALD can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since ALD is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

Although ALD’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. Keep in mind I haven't considered other factors such as how ALD has been performing in the past. You should continue to research ALDA Spólka Akcyjna to get a more holistic view of the small-cap by looking at: