How Financially Strong Is Artilium plc (LON:ARTA)?
While small-cap stocks, such as Artilium plc (AIM:ARTA) with its market cap of £40.10M, 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, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into ARTA here.
Does ARTA generate enough cash through operations?
ARTA’s debt levels surged from €2.0M to €2.2M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €2.9M , ready to deploy into the business. Moreover, ARTA has produced cash from operations of €3.9M over the same time period, leading to an operating cash to total debt ratio of 1.78x, signalling that ARTA’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In ARTA’s case, it is able to generate 1.78x cash from its debt capital.
Can ARTA meet its short-term obligations with the cash in hand?
At the current liabilities level of €9.2M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of €5.4M, with a current ratio of 0.59x below the prudent level of 3x.
Is ARTA’s level of debt at an acceptable level?
With a debt-to-equity ratio of 12.43%, ARTA’s debt level may be seen as prudent. ARTA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for ARTA, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? ARTA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for ARTA, especially when liquidity may also be an issue. I recommend taking a look at ARTA’s future growth analysis on our free platform. to properly assess the company’s position in further detail.
Are you a potential investor? ARTA’s high cash coverage and low levels of debt indicate its ability to use its borrowings efficiently in order to produce a healthy cash flow. Although, in the event of adversity, the company may be pressed to meet its short-term obligations due to its low-liquidity asset composition. As a following step, you should take a look at ARTA’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
