While small-cap stocks, such as Olympique Lyonnais Groupe SA (EPA:OLG) with its market cap of €169m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes crucial, 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. However, these checks don't give you a full picture, so I’d encourage you to dig deeper yourself into OLG here.
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Does OLG Produce Much Cash Relative To Its Debt?
OLG has sustained its debt level by about €271m over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at €17m to keep the business going. On top of this, OLG has produced €18m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 6.7%, meaning that OLG’s debt is not covered by operating cash.
Can OLG meet its short-term obligations with the cash in hand?
With current liabilities at €148m, the company may not have an easy time meeting these commitments with a current assets level of €129m, leading to a current ratio of 0.87x. The current ratio is calculated by dividing current assets by current liabilities.
Does OLG face the risk of succumbing to its debt-load?
With debt reaching 98% of equity, OLG may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
OLG’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. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for OLG's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Olympique Lyonnais Groupe to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OLG’s future growth? Take a look at our free research report of analyst consensus for OLG’s outlook.
- Valuation: What is OLG 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 OLG 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.
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