What Does Altia Oyj's (HEL:ALTIA) Balance Sheet Tell Us About It?

Simply Wall St

Investors are always looking for growth in small-cap stocks like Altia Oyj (HEL:ALTIA), with a market cap of €260m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, 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 recommend you dig deeper yourself into ALTIA here.

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Does ALTIA Produce Much Cash Relative To Its Debt?

ALTIA has shrunk its total debt levels in the last twelve months, from €102m to €91m , which also accounts for long term debt. With this debt repayment, ALTIA's cash and short-term investments stands at €42m , ready to be used for running the business. On top of this, ALTIA has produced €6.5m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 7.2%, meaning that ALTIA’s debt is not covered by operating cash.

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

Looking at ALTIA’s €140m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of €205m, leading to a 1.47x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Beverage 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.

HLSE:ALTIA Historical Debt, May 23rd 2019

Does ALTIA face the risk of succumbing to its debt-load?

ALTIA is a relatively highly levered company with a debt-to-equity of 60%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether ALTIA 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 ALTIA's, case, the ratio of 14.07x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as ALTIA’s high interest coverage is seen as responsible and safe practice.

Next Steps:

ALTIA’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 ALTIA's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ALTIA's financial health. Other important fundamentals need to be considered alongside. You should continue to research Altia Oyj to get a better picture of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ALTIA’s future growth? Take a look at our free research report of analyst consensus for ALTIA’s outlook.
  2. Valuation: What is ALTIA 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 ALTIA is currently mispriced by the market.
  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.