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Are Akastor ASA's (OB:AKA) Interest Costs Too High?

Simply Wall St

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Investors are always looking for growth in small-cap stocks like Akastor ASA (OB:AKA), with a market cap of øre3.8b. However, an important fact which most ignore is: how financially healthy is the business? Since AKA is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into AKA here.

AKA’s Debt (And Cash Flows)

AKA's debt levels have fallen from øre2.5b to øre602m over the last 12 months , which also accounts for long term debt. With this debt payback, AKA currently has øre198m remaining in cash and short-term investments to keep the business going. Additionally, AKA has generated øre315m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 52%, meaning that AKA’s current level of operating cash is high enough to cover debt.

Does AKA’s liquid assets cover its short-term commitments?

At the current liabilities level of øre3.2b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.23x. The current ratio is the number you get when you divide current assets by current liabilities. For Energy Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

OB:AKA Historical Debt, April 9th 2019
OB:AKA Historical Debt, April 9th 2019

Can AKA service its debt comfortably?

With debt at 14% of equity, AKA may be thought of as appropriately levered. AKA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with AKA, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

AKA’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how AKA has been performing in the past. You should continue to research Akastor to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AKA’s future growth? Take a look at our free research report of analyst consensus for AKA’s outlook.

  2. Valuation: What is AKA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AKA is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.