What You Should Know About Witbe SA's (EPA:ALWIT) Financial Strength
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While small-cap stocks, such as Witbe SA (EPA:ALWIT) with its market cap of €17m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since ALWIT is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. 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 ALWIT here.
ALWIT’s Debt (And Cash Flows)
ALWIT has shrunk its total debt levels in the last twelve months, from €5.4m to €5.0m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at €2.3m to keep the business going. On top of this, ALWIT has generated €2.0m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 41%, meaning that ALWIT’s operating cash is sufficient to cover its debt.
Does ALWIT’s liquid assets cover its short-term commitments?
At the current liabilities level of €8.9m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.66x. The current ratio is calculated by dividing current assets by current liabilities. For IT companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ALWIT service its debt comfortably?
ALWIT is a relatively highly levered company with a debt-to-equity of 95%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since ALWIT is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
ALWIT’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 ALWIT'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 ALWIT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Witbe to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALWIT’s future growth? Take a look at our free research report of analyst consensus for ALWIT’s outlook.
Valuation: What is ALWIT 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 ALWIT 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.
