Yahoo Finance Is EVR Holdings plc’s (LON:EVRH) Balance Sheet Strong Enough To Weather A Storm?
Zero-debt allows substantial financial flexibility, especially for small-cap companies like EVR Holdings plc (LON:EVRH), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean EVRH has outstanding financial strength. I will take you through a few basic checks to assess the financial health of companies with no debt.
See our latest analysis for EVR Holdings
Is EVRH right in choosing financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. EVRH’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company.
Does EVRH’s liquid assets cover its short-term commitments?
Since EVR Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of UK£1.1m liabilities, the company has been able to meet these obligations given the level of current assets of UK£26.6m, with a current ratio of 24.62x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue EVRH could be holding too much capital in a low-return investment environment.
Next Steps:
As a high-growth company, it may be beneficial for EVRH to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Moving forward, its financial position may be different. This is only a rough assessment of financial health, and I’m sure EVRH has company-specific issues impacting its capital structure decisions. I recommend you continue to research EVR Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EVRH’s future growth? Take a look at our free research report of analyst consensus for EVRH’s outlook.
Valuation: What is EVRH 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 EVRH 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 editorial-team@simplywallst.com.
