Avidly Oyj (HEL:AVIDLY): Time For A Financial Health Check
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Avidly Oyj (HEL:AVIDLY) is a small-cap stock with a market capitalization of €15m. 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? Assessing first and foremost the financial health is crucial, since poor capital management may bring about 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. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into AVIDLY here.
Does AVIDLY Produce Much Cash Relative To Its Debt?
Over the past year, AVIDLY has reduced its debt from €4.1m to €3.7m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at €3.0m , ready to be used for running the business. Moreover, AVIDLY has produced cash from operations of €934k over the same time period, leading to an operating cash to total debt ratio of 25%, indicating that AVIDLY’s operating cash is sufficient to cover its debt.
Does AVIDLY’s liquid assets cover its short-term commitments?
Looking at AVIDLY’s €6.1m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.25x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Media companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does AVIDLY face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 45%, AVIDLY 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 AVIDLY 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 AVIDLY's, case, the ratio of 2.04x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
AVIDLY’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. Since there is also no concerns around AVIDLY's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for AVIDLY's financial health. Other important fundamentals need to be considered alongside. You should continue to research Avidly Oyj to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for AVIDLY’s future growth? Take a look at our free research report of analyst consensus for AVIDLY’s outlook.
Valuation: What is AVIDLY 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 AVIDLY 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.
