Yahoo Finance Are Avio SpA’s (BIT:AVIO) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Avio SpA (BIT:AVIO), with a market cap of €371.14m. However, an important fact which most ignore is: how financially healthy is the business? So, 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. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into AVIO here.
How does AVIO’s operating cash flow stack up against its debt?
In the previous 12 months, AVIO’s rose by about €65.32m made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at €107.03m , ready to deploy into the business. Additionally, AVIO has produced €6.06m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 9.28%, indicating that AVIO’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AVIO’s case, it is able to generate 0.093x cash from its debt capital.
Can AVIO meet its short-term obligations with the cash in hand?
Looking at AVIO’s most recent €385.41m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €433.46m, with a current ratio of 1.12x. Usually, for Aerospace & Defense 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 AVIO service its debt comfortably?
AVIO’s level of debt is appropriate relative to its total equity, at 23.15%. This range is considered safe as AVIO is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether AVIO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In AVIO’s, case, the ratio of 9.03x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AVIO ample headroom to grow its debt facilities.
Next Steps:
Although AVIO’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure AVIO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Avio to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AVIO’s future growth? Take a look at our free research report of analyst consensus for AVIO’s outlook.
Valuation: What is AVIO 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 AVIO 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 pass 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.
