What Investors Should Know About Wilmington plc’s (LON:WIL) Financial Strength
Investors are always looking for growth in small-cap stocks like Wilmington plc (LON:WIL), with a market cap of UK£157m. However, an important fact which most ignore is: how financially healthy is the business? 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. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into WIL here.
How much cash does WIL generate through its operations?
WIL has sustained its debt level by about UK£51m over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, WIL’s cash and short-term investments stands at UK£11m for investing into the business. Moreover, WIL has generated UK£16m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 32%, meaning that WIL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WIL’s case, it is able to generate 0.32x cash from its debt capital.
Can WIL pay its short-term liabilities?
With current liabilities at UK£53m, it seems that the business may not be able to easily meet these obligations given the level of current assets of UK£39m, with a current ratio of 0.74x.
Can WIL service its debt comfortably?
Since total debt levels have outpaced equities, WIL is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether WIL 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 WIL’s, case, the ratio of 8.54x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving WIL ample headroom to grow its debt facilities.
Next Steps:
Although WIL’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. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure WIL has company-specific issues impacting its capital structure decisions. You should continue to research Wilmington to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WIL’s future growth? Take a look at our free research report of analyst consensus for WIL’s outlook.
Valuation: What is WIL 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 WIL 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.
