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WALLIX GROUP SA (EPA:ALLIX) is a small-cap stock with a market capitalization of €110.0m. 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? Software companies, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into ALLIX here.
How much cash does ALLIX generate through its operations?
ALLIX has built up its total debt levels in the last twelve months, from €1.6m to €2.0m , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €7.0m , ready to deploy into the business. Additionally, ALLIX has produced €3.4m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 173%, signalling that ALLIX’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In ALLIX’s case, it is able to generate 1.73x cash from its debt capital.
Can ALLIX pay its short-term liabilities?
With current liabilities at €12.2m, the company has been able to meet these commitments with a current assets level of €15.1m, leading to a 1.24x current account ratio. Generally, for Software companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ALLIX face the risk of succumbing to its debt-load?
With debt at 24.5% of equity, ALLIX may be thought of as appropriately levered. ALLIX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. ALLIX’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
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ALLIX’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ALLIX has been performing in the past. I suggest you continue to research WALLIX GROUP to get a better picture of the stock by looking at: