Yahoo Finance Is Bechtle AG's (ETR:BC8) Balance Sheet Strong Enough To Weather A Storm?
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While small-cap stocks, such as Bechtle AG (ETR:BC8) with its market cap of €4.1b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes vital, as mismanagement of capital can lead to 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 recommend you dig deeper yourself into BC8 here.
Does BC8 Produce Much Cash Relative To Its Debt?
BC8's debt levels surged from €84m to €392m over the last 12 months , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €192m , ready to be used for running the business. Additionally, BC8 has generated €104m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 27%, indicating that BC8’s operating cash is sufficient to cover its debt.
Can BC8 meet its short-term obligations with the cash in hand?
At the current liabilities level of €667m, the company has been able to meet these commitments with a current assets level of €1.3b, leading to a 2.02x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for IT companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does BC8 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 43%, BC8 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BC8's case, the ratio of 76.28x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BC8 ample headroom to grow its debt facilities.
Next Steps:
Although BC8’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 BC8 has company-specific issues impacting its capital structure decisions. You should continue to research Bechtle to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BC8’s future growth? Take a look at our free research report of analyst consensus for BC8’s outlook.
Valuation: What is BC8 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 BC8 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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