Global Dominion Access, S.A. (BME:DOM): Time For A Financial Health Check
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Global Dominion Access, S.A. (BME:DOM) is a small-cap stock with a market capitalization of €775m. 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 vital, since poor capital management may bring about 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, this is just a partial view of the stock, and I recommend you dig deeper yourself into DOM here.
DOM’s Debt (And Cash Flows)
DOM has built up its total debt levels in the last twelve months, from €67m to €130m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €206m to keep the business going. Additionally, DOM has produced €70m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 54%, signalling that DOM’s current level of operating cash is high enough to cover debt.
Does DOM’s liquid assets cover its short-term commitments?
With current liabilities at €608m, the company has been able to meet these commitments with a current assets level of €624m, leading to a 1.03x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for IT companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can DOM service its debt comfortably?
With a debt-to-equity ratio of 41%, DOM 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 DOM’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 DOM, the ratio of 6.2x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as DOM’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although DOM’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. Keep in mind I haven't considered other factors such as how DOM has been performing in the past. You should continue to research Global Dominion Access to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for DOM’s future growth? Take a look at our free research report of analyst consensus for DOM’s outlook.
Valuation: What is DOM 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 DOM 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.
