While small-cap stocks, such as Asseco Poland SA (WSE:ACP) with its market cap of zł3.72b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Software companies, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into ACP here.
How does ACP’s operating cash flow stack up against its debt?
ACP has built up its total debt levels in the last twelve months, from zł1.42b to zł1.57b – this includes both the current and long-term debt. With this rise in debt, ACP’s cash and short-term investments stands at zł1.60b , ready to deploy into the business. Additionally, ACP has generated cash from operations of zł733.0m over the same time period, leading to an operating cash to total debt ratio of 46.7%, meaning that ACP’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ACP’s case, it is able to generate 0.47x cash from its debt capital.
Does ACP’s liquid assets cover its short-term commitments?
With current liabilities at zł2.53b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.68x. For Software companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ACP service its debt comfortably?
With a debt-to-equity ratio of 14.5%, ACP’s debt level may be seen as prudent. This range is considered safe as ACP is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether ACP 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 ACP’s, case, the ratio of 14.32x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ACP’s high interest coverage is seen as responsible and safe practice.
ACP’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. I admit this is a fairly basic analysis for ACP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Asseco Poland to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ACP’s future growth? Take a look at our free research report of analyst consensus for ACP’s outlook.
- Valuation: What is ACP 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 ACP is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.