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Witbe SA (
EPA:ALWIT
) is a small-cap stock with a market capitalization of €18m. 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? Companies operating in the IT industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you
dig deeper yourself into ALWIT here
.
Does ALWIT produce enough cash relative to debt?
ALWIT’s debt levels surged from €4.7m to €5.8m over the last 12 months – this includes long-term debt. With this rise in debt, ALWIT currently has €3.3m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of ALWIT’s
operating efficiency ratios such as ROA here
.
Can ALWIT meet its short-term obligations with the cash in hand?
At the current liabilities level of €8.5m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.71x. For IT companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
ENXTPA:ALWIT Historical Debt February 1st 19
Can ALWIT service its debt comfortably?
ALWIT is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since ALWIT is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Although ALWIT’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. This is only a rough assessment of financial health, and I’m sure ALWIT has company-specific issues impacting its capital structure decisions. You should continue to research Witbe to get a more holistic view of the small-cap by looking at:
Story continues
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
.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at
.
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