How Financially Strong Is BillerudKorsnäs AB (publ) (STO:BILL)?
Investors are always looking for growth in small-cap stocks like BillerudKorsnäs AB (publ) (STO:BILL), with a market cap of kr26b. However, an important fact which most ignore is: how financially healthy is the business? 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. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into BILL here.
Does BILL Produce Much Cash Relative To Its Debt?
Over the past year, BILL has ramped up its debt from kr5.1b to kr9.0b – this includes long-term debt. With this increase in debt, BILL's cash and short-term investments stands at kr456m to keep the business going. On top of this, BILL has generated cash from operations of kr2.5b in the last twelve months, leading to an operating cash to total debt ratio of 28%, indicating that BILL’s operating cash is sufficient to cover its debt.
Can BILL meet its short-term obligations with the cash in hand?
Looking at BILL’s kr7.5b in current liabilities, the company has been able to meet these obligations given the level of current assets of kr8.2b, with a current ratio of 1.09x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Packaging companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can BILL service its debt comfortably?
With a debt-to-equity ratio of 63%, BILL 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. We can test if BILL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BILL, the ratio of 15.93x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BILL ample headroom to grow its debt facilities.
Next Steps:
Although BILL’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. Since there is also no concerns around BILL's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure BILL has company-specific issues impacting its capital structure decisions. I suggest you continue to research BillerudKorsnäs to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BILL’s future growth? Take a look at our free research report of analyst consensus for BILL’s outlook.
Valuation: What is BILL 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 BILL 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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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.
