Yahoo Finance Is Savills plc’s (LON:SVS) Balance Sheet A Threat To Its Future?
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Investors are always looking for growth in small-cap stocks like Savills plc (LON:SVS), with a market cap of UK£1.2b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into SVS here.
How much cash does SVS generate through its operations?
SVS has built up its total debt levels in the last twelve months, from UK£178m to UK£253m , which includes long-term debt. With this rise in debt, SVS currently has UK£159m remaining in cash and short-term investments , ready to deploy into the business. Moreover, SVS has generated cash from operations of UK£65m during the same period of time, leading to an operating cash to total debt ratio of 26%, signalling that SVS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SVS’s case, it is able to generate 0.26x cash from its debt capital.
Can SVS pay its short-term liabilities?
At the current liabilities level of UK£522m, it seems that the business has been able to meet these commitments with a current assets level of UK£594m, leading to a 1.14x current account ratio. For Real Estate 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.
Can SVS service its debt comfortably?
SVS is a relatively highly levered company with a debt-to-equity of 59%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
SVS’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around SVS’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure SVS has company-specific issues impacting its capital structure decisions. You should continue to research Savills to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for SVS’s future growth? Take a look at our free research report of analyst consensus for SVS’s outlook.
Valuation: What is SVS 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 SVS 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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