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Millet Innovation SA (ENXTPA:ALINN) is a small-cap stock with a market capitalization of €39.99M. 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 few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into ALINN here.
Does ALINN generate enough cash through operations?
ALINN has sustained its debt level by about €3.08M over the last 12 months made up of current and long term debt. At this stable level of debt, ALINN’s cash and short-term investments stands at €5.75M for investing into the business. On top of this, ALINN has produced €3.78M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 122.75%, meaning that ALINN’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 ALINN’s case, it is able to generate 1.23x cash from its debt capital.
Can ALINN meet its short-term obligations with the cash in hand?
At the current liabilities level of €4.61M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.48x. Though, a ratio greater than 3x may be considered as too high, as ALINN could be holding too much capital in a low-return investment environment.
Can ALINN service its debt comfortably?
With a debt-to-equity ratio of 19.57%, ALINN’s debt level may be seen as prudent. This range is considered safe as ALINN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
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ALINN’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ALINN has company-specific issues impacting its capital structure decisions. You should continue to research Millet Innovation to get a more holistic view of the stock by looking at: