While small-cap stocks, such as Breedon Group plc with its market cap of UK£1.1b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is 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 not a comprehensive overview, so I suggest you dig deeper yourself into BREE here.” data-reactid=”19″>While small-cap stocks, such as Breedon Group plc with its market cap of UK£1.1b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn.
Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into BREE here . BREE’s Debt BREE has built up its total debt levels in the last twelve months, from UK£134m to UK£348m , which accounts for long term debt.
With this rise in debt, the current cash and short-term investment levels stands at UK£38m , ready to be used for running the business. Looking at BREE’s UK£218m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of UK£253m, with a current ratio of 1.16x. The current ratio is calculated by dividing current assets by current liabilities. For Basic Materials 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.
With a debt-to-equity ratio of 45%, BREE 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. We can check to see whether BREE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax at least three times its net interest payments is considered financially sound.
This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. 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 .
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