Yahoo Finance Is ALS Limited’s (ASX:ALQ) Balance Sheet Strong Enough To Weather A Storm?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as ALS Limited (ASX:ALQ) with a market-capitalization of AU$4.4b, rarely draw their attention. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine ALQ’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ALQ here.
Check out our latest analysis for ALS
How does ALQ’s operating cash flow stack up against its debt?
Over the past year, ALQ has reduced its debt from AU$742m to AU$696m – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at AU$188m for investing into the business. On top of this, ALQ has produced AU$186m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 27%, indicating that ALQ’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 ALQ’s case, it is able to generate 0.27x cash from its debt capital.
Can ALQ pay its short-term liabilities?
With current liabilities at AU$216m, the company has been able to meet these commitments with a current assets level of AU$602m, leading to a 2.79x current account ratio. Usually, for Professional Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ALQ service its debt comfortably?
With a debt-to-equity ratio of 62%, ALQ can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if ALQ’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 ALQ, the ratio of 9.94x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Although ALQ’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for ALQ’s financial health. Other important fundamentals need to be considered alongside. You should continue to research ALS to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALQ’s future growth? Take a look at our free research report of analyst consensus for ALQ’s outlook.
Valuation: What is ALQ 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 ALQ 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.
