Yahoo Finance What You Should Know About Autogrill S.p.A.'s (BIT:AGL) Financial Strength
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While small-cap stocks, such as Autogrill S.p.A. (BIT:AGL) with its market cap of €2.2b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about 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, potential investors would need to take a closer look, and I suggest you dig deeper yourself into AGL here.
Does AGL Produce Much Cash Relative To Its Debt?
AGL's debt levels surged from €750m to €930m over the last 12 months , which accounts for long term debt. With this growth in debt, AGL's cash and short-term investments stands at €215m to keep the business going. Moreover, AGL has produced €324m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 35%, signalling that AGL’s current level of operating cash is high enough to cover debt.
Can AGL meet its short-term obligations with the cash in hand?
Looking at AGL’s €844m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of €587m, with a current ratio of 0.7x. The current ratio is calculated by dividing current assets by current liabilities.
Does AGL face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, AGL is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if AGL’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AGL, the ratio of 7.03x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AGL ample headroom to grow its debt facilities.
Next Steps:
Although AGL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for AGL's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Autogrill to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGL’s future growth? Take a look at our free research report of analyst consensus for AGL’s outlook.
Valuation: What is AGL 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 AGL 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.
