Artefact SA (EPA:ALATF) is a small-cap stock with a market capitalization of €76m. 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? Given that ALATF is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into ALATF here.
How does ALATF’s operating cash flow stack up against its debt?
ALATF has sustained its debt level by about €16m over the last 12 months including long-term debt. At this current level of debt, ALATF’s cash and short-term investments stands at €14m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. 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 ALATF’s operating efficiency ratios such as ROA here.
Can ALATF meet its short-term obligations with the cash in hand?
Looking at ALATF’s €71m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of €76m, leading to a 1.07x current account ratio. Generally, for Professional Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ALATF face the risk of succumbing to its debt-load?
ALATF’s level of debt is appropriate relative to its total equity, at 31%. This range is considered safe as ALATF is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with ALATF, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
ALATF has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ALATF’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Artefact to get a better picture of the stock by looking at: