Yahoo Finance Are Swallowfield plc’s (LON:SWL) Interest Costs Too High?
While small-cap stocks, such as Swallowfield plc (LON:SWL) with its market cap of UK£55.26m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to 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 suggest you dig deeper yourself into SWL here.
Does SWL produce enough cash relative to debt?
SWL’s debt levels surged from UK£583.00k to UK£2.09m over the last 12 months , which is made up of current and long term debt. With this rise in debt, SWL currently has UK£4.06m remaining in cash and short-term investments for investing into the business. On top of this, SWL has generated cash from operations of UK£3.85m in the last twelve months, resulting in an operating cash to total debt ratio of 184.04%, signalling that SWL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SWL’s case, it is able to generate 1.84x cash from its debt capital.
Can SWL meet its short-term obligations with the cash in hand?
Looking at SWL’s most recent UK£24.30m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of UK£31.92m, with a current ratio of 1.31x. Usually, for Personal Products companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is SWL’s debt level acceptable?
With debt at 7.31% of equity, SWL may be thought of as having low leverage. This range is considered safe as SWL is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether SWL 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 SWL’s, case, the ratio of 51.69x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving SWL ample headroom to grow its debt facilities.
Next Steps:
SWL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how SWL has been performing in the past. I recommend you continue to research Swallowfield to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SWL’s future growth? Take a look at our free research report of analyst consensus for SWL’s outlook.
Valuation: What is SWL 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 SWL 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.
