Voestalpine AG (VIE:VOE): Time For A Financial Health Check
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Voestalpine AG (VIE:VOE) is a small-cap stock with a market capitalization of €4.2b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into VOE here.
VOE’s Debt (And Cash Flows)
VOE's debt levels have fallen from €4.1b to €3.8b over the last 12 months , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at €668m , ready to be used for running the business. On top of this, VOE has generated cash from operations of €1.2b over the same time period, resulting in an operating cash to total debt ratio of 31%, meaning that VOE’s debt is appropriately covered by operating cash.
Can VOE pay its short-term liabilities?
Looking at VOE’s €4.7b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of €6.8b, leading to a 1.43x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can VOE service its debt comfortably?
With a debt-to-equity ratio of 57%, VOE can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In VOE's case, the ratio of 6.34x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as VOE’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although VOE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure VOE has company-specific issues impacting its capital structure decisions. I recommend you continue to research Voestalpine to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for VOE’s future growth? Take a look at our free research report of analyst consensus for VOE’s outlook.
Valuation: What is VOE 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 VOE 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.
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.
