Is Sioen Industries NV’s (EBR:SIOE) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as Sioen Industries NV (EBR:SIOE) with its market cap of €458m, 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 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into SIOE here.
How does SIOE’s operating cash flow stack up against its debt?
Over the past year, SIOE has reduced its debt from €166m to €149m , which also accounts for long term debt. With this reduction in debt, SIOE currently has €14m remaining in cash and short-term investments for investing into the business. Additionally, SIOE has generated €49m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 33%, signalling that SIOE’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SIOE’s case, it is able to generate 0.33x cash from its debt capital.
Does SIOE’s liquid assets cover its short-term commitments?
Looking at SIOE’s €171m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €245m, with a current ratio of 1.43x. Usually, for Luxury companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is SIOE’s debt level acceptable?
With debt reaching 72% of equity, SIOE may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
SIOE’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how SIOE has been performing in the past. I recommend you continue to research Sioen Industries to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for SIOE’s future growth? Take a look at our free research report of analyst consensus for SIOE’s outlook.
Valuation: What is SIOE 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 SIOE 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.
