What does Urbas Grupo Financiero SA.’s (BME:UBS) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Urbas Grupo Financiero SA. (BME:UBS), with a market cap of €343.74M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into UBS here.
Does UBS generate enough cash through operations?
UBS’s debt levels have fallen from €205.47M to €124.11M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, UBS’s cash and short-term investments stands at €4.89M , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of UBS’s operating efficiency ratios such as ROA here.
Does UBS’s liquid assets cover its short-term commitments?
Looking at UBS’s most recent €205.72M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.48x. Generally, for Real Estate companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is UBS’s debt level acceptable?
With a debt-to-equity ratio of 38.96%, UBS’s debt level may be seen as prudent. This range is considered safe as UBS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether UBS 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 UBS’s, case, the ratio of less than 0.1x suggests is not appropriately covered debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
UBS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, 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 UBS has been performing in the past. I recommend you continue to research Urbas Grupo Financiero to get a more holistic view of the stock by looking at:
1. Valuation: What is UBS 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 UBS is currently mispriced by the market.
2. Historical Performance: What has UBS’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
To help readers see pass 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.
