What does Evotec AG’s (ETR:EVT) Balance Sheet Tell Us About Its Future?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Evotec AG (ETR:EVT), with a market cap of €3.29b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at EVT’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EVT here.
See our latest analysis for Evotec
Does EVT produce enough cash relative to debt?
EVT has built up its total debt levels in the last twelve months, from €7.9m to €156.5m , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at €110.2m , ready to deploy into the business. Moreover, EVT has generated cash from operations of €79.5m in the last twelve months, resulting in an operating cash to total debt ratio of 50.8%, indicating that EVT’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 EVT’s case, it is able to generate 0.51x cash from its debt capital.
Can EVT pay its short-term liabilities?
Looking at EVT’s most recent €224.4m liabilities, the company has not been able to meet these commitments with a current assets level of €207.8m, leading to a 0.93x current account ratio. which is under the appropriate industry ratio of 3x.
Does EVT face the risk of succumbing to its debt-load?
With debt reaching 44.3% of equity, EVT may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether EVT 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 EVT’s, case, the ratio of 42.94x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving EVT ample headroom to grow its debt facilities.
Next Steps:
Although EVT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for EVT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Evotec to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EVT’s future growth? Take a look at our free research report of analyst consensus for EVT’s outlook.
Valuation: What is EVT 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 EVT 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 editorial-team@simplywallst.com.
