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Tivoli A/S (CPH:TIV): Time For A Financial Health Check

Simply Wall St

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While small-cap stocks, such as Tivoli A/S (CPH:TIV) with its market cap of ø3.9b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into TIV here.

TIV’s Debt (And Cash Flows)

TIV has built up its total debt levels in the last twelve months, from ø401m to ø423m – this includes long-term debt. With this increase in debt, TIV currently has ø22m remaining in cash and short-term investments , ready to be used for running the business. On top of this, TIV has generated cash from operations of ø185m over the same time period, leading to an operating cash to total debt ratio of 44%, signalling that TIV’s operating cash is sufficient to cover its debt.

Does TIV’s liquid assets cover its short-term commitments?

With current liabilities at ø335m, the company may not be able to easily meet these obligations given the level of current assets of ø96m, with a current ratio of 0.29x. The current ratio is the number you get when you divide current assets by current liabilities.

CPSE:TIV Historical Debt, June 19th 2019

Is TIV’s debt level acceptable?

With a debt-to-equity ratio of 50%, TIV can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can check to see whether TIV 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 TIV's, case, the ratio of 11.01x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving TIV ample headroom to grow its debt facilities.

Next Steps:

Although TIV’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure TIV has company-specific issues impacting its capital structure decisions. I recommend you continue to research Tivoli to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TIV’s future growth? Take a look at our free research report of analyst consensus for TIV’s outlook.
  2. Historical Performance: What has TIV'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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.