What Does Balta Group NV's (EBR:BALTA) Balance Sheet Tell Us About It?
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While small-cap stocks, such as Balta Group NV (EBR:BALTA) with its market cap of €104m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into BALTA here.
BALTA’s Debt (And Cash Flows)
BALTA has sustained its debt level by about €282m over the last 12 months which accounts for long term debt. At this constant level of debt, BALTA's cash and short-term investments stands at €27m , ready to be used for running the business. Additionally, BALTA has generated €46m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 16%, indicating that BALTA’s current level of operating cash is not high enough to cover debt.
Can BALTA pay its short-term liabilities?
With current liabilities at €170m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.42x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Consumer Durables companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can BALTA service its debt comfortably?
With total debt exceeding equity, BALTA is considered a highly levered company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether BALTA 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 BALTA's, case, the ratio of 1.9x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
BALTA’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around BALTA's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for BALTA's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Balta Group to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BALTA’s future growth? Take a look at our free research report of analyst consensus for BALTA’s outlook.
Valuation: What is BALTA 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 BALTA 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.
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