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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Alten SA (EPA:ATE), with a market capitalization of €2.7b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at ATE’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Alten’s financial health, so you should conduct further analysis into ATE here.
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How does ATE’s operating cash flow stack up against its debt?
Over the past year, ATE has ramped up its debt from €80m to €137m – this includes both the current and long-term debt. With this rise in debt, ATE currently has €90m remaining in cash and short-term investments , ready to deploy into the business. Moreover, ATE has produced cash from operations of €87m over the same time period, resulting in an operating cash to total debt ratio of 63%, indicating that ATE’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ATE’s case, it is able to generate 0.63x cash from its debt capital.
Does ATE’s liquid assets cover its short-term commitments?
With current liabilities at €627m, the company has been able to meet these obligations given the level of current assets of €957m, with a current ratio of 1.53x. Usually, for IT 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.
Can ATE service its debt comfortably?
With debt at 16% of equity, ATE may be thought of as appropriately levered. ATE is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether ATE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ATE’s, case, the ratio of 895x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
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ATE’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ATE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Alten to get a better picture of the stock by looking at: